By Wayne Cole
SYDNEY (Reuters) - Australia's economy slowed last quarter as cautious consumers curbed spending and the country imported more, though the result was better than many had feared - and still ahead of most of its rich-world peers.
Wednesday's data showed gross domestic product (GDP) rose 0.5 percent in the second quarter, from the first quarter when it expanded by a surprisingly strong 1.1 percent.
In some ways the slowdown was self-inflicted as heavily-criticised government efforts to justify an unpopular budget of spending cuts and higher charges further sapped consumer sentiment and spending.
Household consumption increased by a pedestrian 0.5 percent,while Australians chose to save a precautionary 9.4 percent of their disposable income.
Yet growth still topped forecasts of a 0.4 percent rise, leaving the Australian dollar <AUD=D4> steady at $0.9275.
"When we average out the first-half GDP, growth was tracking along at 3 percent per annum, and that looks good when you benchmark it against all the negatives that were at work through the period," said Michael Blythe, chief economist at Commonwealth Bank of Australia.
The softening in the economy would be no surprise to the Reserve Bank of Australia (RBA) which recently trimmed its growth forecast for all of 2014 back to 2.5 percent.
It assumes the sub-par performance will last for months to come as the economy weathers the winding down of a decade-long boom in mining investment.
That is a major reason markets expect interest rates to stay at record lows of 2.5 percent well into 2015, and why investors are wagering that, if there is a move, it will be downward.
Yet more timely data suggest the current quarter has seen a pick-up in growth with businesses reporting rising sales and orders, and retailers enjoying better times.
Double-digit increases in house prices are fattening consumer wealth and spending in the face of sluggish wages, while encouraging a surge in home building.
AHEAD BY MOST STANDARDS
The report on the second quarter from the Australian Bureau of Statistics showed GDP was 3.1 percent higher than the year before. That was down from first quarter's 3.4 percent, but still brisk by developed nation standards.
The United States had managed 2.5 percent, the euro zone 0.7 percent and Germany 0.8 percent.
For the year to June, the value of all goods and services produced was A$1.59 trillion (0.89 trillion pounds), or about A$68,029 ($63,052) for each of its 23.4 million people. That compares with per capita GDP in the United States of $54,376.
Dragging on growth was a sharp rebound in imports, mainly of capital goods, while export volumes dipped slightly.
More worrying was a steep fall in prices for Australia's major commodity exports, notably iron ore, which took a heavy toll on miners' incomes.
The impact was clearest when measuring GDP in current dollars where growth stalled completely in the quarter, a bad omen for tax revenues.
On the other side of the ledger, inventories made a healthy contribution to growth as firms refilled shelves after several quarters of running down stocks.
Home construction expanded by a robust 5.7 percent in the quarter, to be almost 15 percent higher for the year.
There was also scant sign of inflationary pressures in the report as the GDP deflator fell by a sharp 0.5 percent, the biggest drop in seven quarters.
(Editing by Eric Meijer)