Article by ForexTime

The Australian dollar fell after GDP data showed that Australia’s economy grew by a mere 0.2% in the second quarter, which was the slowest quarterly growth since the March quarter of 2011. The annual pace of growth stayed at a near two-year low of 2.0%.

Markets had been expecting a quarterly increase of 0.4%, something that would have left annual growth at 2.2%.
According to Michael Workman, senior economist at CBA who had been forecasting quarterly GDP of 0.5%, external factors will present a challenge to the growth outlook in the years ahead.

“Looking ahead, it is clear that Australia’s external environment, namely commodity prices and trading partner growth, will present challenges over coming years”, says Workman, adding “lifting national incomes will require some consistent economic reforms aimed at lifting national productivity and enhancing competitiveness”.

Given the GDP reading was in line with the RBA’s August forecasts, along with recent statements from the bank that another rate cut is unlikely, he has not changed his view that the cash rate, at 2.00%, has bottomed.

Felicity Emmett, the co-head of Australian economics at ANZ who correctly predicted the Q2 growth rate, described the result as “soft”, although she believes the Q2 figure probably understates momentum in the economy, just as the Q1 figure overstated it.

“Even if taken together with the 0.9% q/q rise in Q1 it suggests growth remains anaemic. GDP was held down by a significant subtraction from net exports, but business investment also fell and household consumption growth remains soft. A strong contribution from public demand boosted overall growth. Today’s report continues to suggest the non-mining recovery remains very patchy, and with the international environment deteriorating the risks to the cash rate remain tilted to the downside”, says Emmett.

Article by ForexTime

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