Economy growing at slowest pace since 1990s recession
Apart from COVID, economic growth is at its the slowest since 1991/92 when Australia was gradually recovering from the 1991 recession.
THE economy grew by just 0.2 per cent in the three months to June, in line with expectations.
The rate was 1.5 per cent over the course for the last financial year, Australian Bureau of Statistics head of national accounts Katherine Keenan said.
“Excluding the COVID-19 pandemic period, annual financial year economic growth was the lowest since 1991/92 – the year that included the gradual recovery from the 1991 recession,” Ms Keenan said.
The RBA was bracing for another weak set of national accounts data and is unlikely to be swayed on interest rates. It maintains underlying price pressures are still strong and interest rate cuts were looking unlikely until next year.
The latest data prompted a mixed reaction from economists with several prominent forecasters suggesting a pre-Christmas rate cut could still be on the cards.
Krishna Bhimavarapu, APAC economist at State Street Global Advisors, said the continuing slowdown in economic growth was the “clearest indication yet” that monetary policy was restrictive enough in Australia.
“This data should at the very least lead the RBA to make a dovish pivot, considering how uncertain they were during the last meeting,” she said.
“We still look for the first rate cut in November as headline CPI [inflation] could ease to around 3 per cent in the third quarter.”
Tony Sycamore, from IG, said despite the RBA’s recent warning that it may still have to lift interest rates, markets doubted that would happen.
“The interest rate market still expects the RBA’s next move to be a rate cut, with 23 basis points of rate cuts priced by year-end and a cumulative 56 basis points of cuts by April 2025,” he said.
Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said that while restrictive monetary policy was having the desired effect of slow growth, the RBA would remain concerned about “upside risks” to inflation.
“Tight policy settings have clearly induced a slowdown in activity, but domestic price pressures are still elevated, with the domestic price deflator up a sharp 0.9 per cent quarter on quarter,” he said.
“Construction cost pressures show few signs of easing,” he explained.
“These signals will only sharpen the RBA’s concerns over upside risks to inflation.
“The economy is lacking a clear engine of growth. Tight policy settings have successfully reined in demand, but inflationary pressures are yet to be completely tamed.
“Income tax cuts and consumer subsidies will aid momentum in the second half of the year, but any improvement in activity will be unspectacular.”
