Australia economy shows tepid growth, easing seen

Growth remains below-trend in Australia: HSBC

Australia's economy continued to show sluggish growth in the fourth quarter, adding to the case for further stimulus in the coming months.

The economy expanded 2.5 percent in the fourth quarter from the year-ago period, government data showed on Wednesday, in line with expectations and after growing 2.7 percent in the third quarter.

Quarter on quarter, the economy logged growth of 0.5 percent, also matching estimates and following the 0.3 percent expansion in the third quarter.

Markets showed little reaction on the news: the benchmark S&P ASX 200 index was down 0.3 percent, no change from before the data release, while the Australian dollar rose briefly to $0.7829 before falling back.

The figures came a day after the Reserve Bank of Australia (RBA) decided to refrain from further monetary stimulus, after it cut rates by 25 basis points last month to a historic low of 2.25 percent.

"The bias is certainly to further easing, with the economy growing below-trend and unemployment rates rising, and that gives them plenty of ammunition to cut rates once more by May, taking cash rates to 2 percent," said Matthew Circosta, economist at Moody's Analytics.

Customers browse inside a Hennes & Mauritz AB (H&M) fashion store in Melbourne, Australia.
Carla Gottgens | Bloomberg | Getty Images

"There's a possibility of a further [rate cut] in the second half of 2015 if the economy fails to gain traction," he added.

The economy has been hamstrung by weak employment, easing inflation and sluggish corporate profits, as it struggles to rebalance away from a focus on mining.

While record-low cash rates have helped provide support, there are concerns its fueling a housing bubble, with Sydney property prices, in particular, surging.

But some analysts argue that the housing sector is offsetting the slowdown in resources by providing wealth and jobs.

"Growth is rebalancing, it's shifting from being told by the mining sector to the non-mining sector and the most vivid area that's happening in is a pickup in housing market in Sydney, in Melbourne, in the Southeastern states," Paul Bloxham, chief economist of Australia and New Zealand at HSBC, told CNBC.

"So yes, it may be the case that the RBA thought that yesterday look we're trying to support growth but we don't really want to push the Sydney housing market too hard," Bloxham said.

"[But] we have in mind that there's one more [rate cut] to come," he added.