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Australia's Economy Expands Less Than Expected; Currency Drops

ForexDec 05, 2018 04:23
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© Reuters. Australia's Economy Expands Less Than Expected; Currency Drops

(Bloomberg) -- Australia’s economy expanded less than expected in the three months through September amid sluggish consumption and as commercial construction declined. The currency slumped almost half a U.S. cent.

  • Gross domestic product rose 0.3 percent from the second quarter versus economists’ median estimate of 0.6 percent; economy grew 2.8 percent from a year earlier versus 3.3 percent forecast, the statistics bureau said in Sydney Wednesday.

Key Insights

  • The household savings ratio fell to 2.4 percent from a revised 2.8 percent; household spending rose 0.3 percent from the previous quarter
  • Government spending on roads, bridges and railways has supported the economy; authorities are ramping up infrastructure projects to catch up with an expanding population; high immigration has been another key economic factor
  • The downside is the projects coincide with the late stages of a housing construction boom as public and private sectors compete for labor -- that’s forcing some residential builders to scrap projects due to excessive costs in a weakening property market

Market Reaction

  • The Australian dollar bought 73.04 U.S. cents at 11:38 a.m. in Sydney compared with 73.50 before the report

Know More

  • The Reserve Bank of Australia has kept interest rates at a record-low 1.5 percent for almost 2-1/2 years to spur investment and hiring
  • It’s trying to drive above-trend economic growth to tighten the jobs market and encourage employers to pay higher wages; that should lift inflation and set the stage for the first interest-rate hike since 2010
  • Property prices are now falling and the bank is paying close attention to whether households begin to rein in spending and increase savings
  • Australia is the most China-dependent economy in the developed world and the combination of Beijing’s trade battle with the U.S. and efforts to cool credit growth could see China’s economy slow further. That in turn would reverberate Down Under
Australia's Economy Expands Less Than Expected; Currency Drops
 

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