Economy grew by a ‘subdued’ 2.3% in 2018

Stuart Condie
(Australian Associated Press)

 

The Australian economy grew by a “subdued” 2.3 per cent in 2018 after restrained consumer spending and a faltering housing market contributed to a below expectation December quarter.

Data released on Wednesday by the Australian Bureau of Statistics showed the economy grew by 0.2 per cent in the three months to December 31, missing consensus forecasts and falling short of the Reserve Bank’s downgraded full-year growth target of 2.75 per cent.

“Growth in the economy was subdued, reflecting soft household spending and a decline in dwelling investment,” ABS chief economist Bruce Hockman said.

“The approvals for dwelling construction indicate that the decline in dwelling investment will continue.”

NAB market economist Kaixin Owyong said the chances of a Reserve Bank rate cut had increased with the data – especially if the labour market falters – but that she still forecasts no change in the foreseeable future.

The RBA cut the cash rate to a record low 1.5 per cent in August 2016 and it has remained there since.

“For the RBA, the data makes its forecast of three per cent growth over 2019 look increasingly unlikely, as growth would need to accelerate markedly from its current rate,” she said.

“We believe the (Reserve) Bank will be increasingly uncomfortable with the ‘growing tension between strong labour market data and softer GDP data’ as the weakness in household spending appears to be more persistent than it forecast.”

Household final consumption expenditure increased 0.4 per cent during the quarter, the third time in a year it has been 0.4 per cent or lower.

Government final consumption expenditure increased 1.8 per cent and contributed 0.3 percentage points to quarterly GDP growth.

The Australian dollar dropped to a two-month low of 70.52 US cents, from 70.88 US cents just before the data was released at 1130 AEDT.

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