World Economy

Australian economy gets investment lift, but consumers struggle

Australia's Prime Minister Malcolm Turnbull
Edgar Su | Reuters

Australia's economy expanded at the fastest annual pace in over a year last quarter thanks to a long-awaited jump in business investment, though marked weakness in household spending cast a cloud over the outlook for growth.

Wednesday's data from the Australian Bureau of Statistics showed gross domestic product (GDP) grew by 0.6 percent in the third quarter, from the previous quarter when it rose 0.9 percent.

Growth for the year sprang ahead to 2.8 percent, from 1.9 percent, in part because a rare contraction suffered in the third quarter of last year dropped out of the calculation.

The result just missed market forecasts of growth of 0.7 percent for the quarter and nudged the local dollar down a quarter of a cent to $0.7580.

The result would be no surprise to the Reserve Bank of Australia (RBA) which only Tuesday kept interest rates steady at 1.5 percent in anticipation of faster growth and a gradual revival in inflation.

Investors suspect policy will stay on hold for a long time to come and interbank futures are not fully priced for a hike until early 2019.

The main driver of growth in the third quarter was engineering construction, with a small assist from a build up in inventories.

Otherwise, activity was meager with consumers especially strapped by slow wage growth and mountains of debt. Household consumption rose just 0.2 percent in the quarter, the smallest increase since late 2012.

Some of that spending had to be funded by saving less, with the savings ratio down at a lowly 3.2 percent.

"The big surprise was consumer spending - looks horrible," said Shane Oliver, chief economist at AMP Capital.

"The clear message from this is that constrained consumer remains a big source of uncertainty for growth in Australia."

The lack of demand meant inflation was also a no-show, with a key measure of domestic prices flat in the quarter.