The Australian economy grew modestly in the June quarter of this year after moderate gains in consumer and government expenditure outweighed a largely flat performance elsewhere in the economy. On a q-o-q basis, GDP growth rose by 0.6% in Q2 after a rise of 0.5% was posted in the preceding quarter. The figure failed to impress, however, as there were few signs to suggest that business and consumer expenditures would replace mining investment as key growth drivers – consumer spending grew by just 0.4% on the quarter for instance. When compared with the same period a year earlier, GDP growth expanded by 2.6%, and although this was up slightly on the previous quarter’s 2.5% gain, it was nevertheless, well below last year’s average of 3.7%. The GDP release came a few days before Australia’s national elections, held on September 7, when the opposition conservative National-Liberal coalition beat the ruling Labour party after six years in power, and just after September’s monetary policy meeting. At the latest meeting, the central bank decided to keep its key interest rate at a record low of 2.5%, following two rate cuts in May and August. The benign inflation climate and expectations that past monetary easing will support interest rate-sensitive spending and asset values going forward, contributed to the decision to stay on hold. In view of the latest GDP report and subdued inflation data (2.4% y-o-y) for the second quarter, consensus GDP growth forecasts for this year remain unchanged, while inflation projections continue to hover at the lower end of the official target range of 2-3%.
On the external front, Australia posted a current account deficit of A$9.35bn in the three months to June, up from A$-8.7bn in the prior quarter. The current account deficit is expected to come in at just under A$40.0bn for this year.
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