SYDNEY – Australia's economy grew at a slower pace than expected in the third quarter, feeding into economists' concerns about a lopsided expansion as businesses chalk up strong profits while consumers keep their wallets tightly closed.
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Senior government officials hailed the result as an investment-driven growth story that places Australia among the fastest-growing developed economies in the world, but analysts focused on the weakest household consumption figures since the global financial crisis.
The economy grew 0.6% in the third quarter from the second quarter, and by 2.8% when compared with a year ago, the Australian Bureau of Statistics said Wednesday. Economists had forecast growth of 0.7% over the quarter and 3.0% over the year, and had indicated that the yearly figure would offer a somewhat flattering picture of the economy helped by a low base of comparison last year.
The Australian dollar slid about a quarter of a U.S. cent as market participants essentially lowered their expectations that Australia's central bank--already in a lengthy holding pattern--will take action on interest rates anytime soon.
The figures highlighted the two-track nature of Australia's recent economic growth. Corporate sentiment is high, buoyed by strengthening global growth and robust exports, contributing to a jump in private investment over the quarter. But household consumption grew by just 0.1% in the quarter and is tracking weak growth levels not seen in almost a decade.
Treasurer Scott Morrison welcomed the acceleration in on-year growth, focusing on the jump in company spending.
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"This [on-year growth] is above the OECD average and puts Australia back up towards the top of the pack for major advanced economies around the world," Mr. Morrison said.
Australian firms are experiencing the best trading conditions in 20 years, recording strong profits and adding full-time staff at a strong clip. The statistics bureau said Wednesday that 17 of 20 industries recorded positive growth in the quarter.
But a cloud still hangs over the Australian consumer, with record household debt, years of record-low wages growth, and, more recently, softening house prices.
Domestic consumption is a major concern given that consumer spending represents 60% of the economy. On a quarterly basis, the economy actually slowed overall from revised growth of 0.9% in April-June.
Bill Evans, chief economist at Westpac, said pressure is building on consumers and it is forcing a change in spending patterns that threatens to choke off growth.
"The big concern is whether households, the engine of the economy, accept that expectations of a lift in wages growth are unjustified and it becomes necessary to adjust spending to a lower income outlook," he said.
The third quarter saw big increases in electricity costs and more recent rises in fuel prices are also eating into any remaining slack consumers may have for additional spending.
Monthly retail sales released Tuesday showed a return to stronger consumption at the start of the fourth quarter after a dismal winter of spending Down Under, but economists pointed out that the gains were largely a statistical rebound.
Still, the government is betting on strong consumer spending to support stronger GDP growth and an improvement in its budget over time. That view looks too optimistic, Mr. Evans said.
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(END) Dow Jones Newswires
December 05, 2017 23:56 ET (04:56 GMT)