By James Glynn
SYDNEY--Australia's economy grew at its slowest annual pace since the financial crisis in the second quarter, dragged down by weak consumer spending and a sharp contraction in housing construction to a pace well below that needed to put a dent in unemployment.
The economy grew by 0.5% in the quarter and by 1.4% on an annual basis, in line with expectations of economists.
Strong contributions from government spending and exports kept growth from slumping further, the Australian Bureau of Statistics said Wednesday.
Interest rates were cut in June and July in response to the slowdown in the economy, while the government delivered income tax cuts in June to help bolster consumer spending.
The Reserve Bank of Australia left interest rates unchanged at a record low of 1.0% at its policy meeting Tuesday, but kept the door ajar to cut further if growth remains sluggish.
Already there are signs that easier policy settings are having some impact by lifting house prices in August, with Sydney and Melbourne driving the recovery.
Firming house prices should lift consumer confidence, but it is an outcome the RBA would rather avoid given increasing asset prices are likely to add to record household debt.
The big weakness of the economy continues to be soft consumer spending which has dropped off due to years of flat wages growth and high debt levels. Personal savings continued to be run down in the second quarter, with the household savings ratio falling to 2.3% from 3.0% in the first quarter.
The escalating trade war between the U.S. and China is also a threat to Australia's outlook, but that's not evident at the moment. Data released Tuesday showed that Australia posted its first current accounts surplus in 44 years in the second quarter, helped by a jump in iron ore prices, and weaker imports.
Still, a slowdown in world growth will eventually damp commodity prices more generally, putting a brake on growth in resources-exporting economies like Australia.
-Write to James Glynn at email@example.com
(END) Dow Jones Newswires
September 03, 2019 21:47 ET (01:47 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.