SYDNEY, Sept 3 (Reuters) – Australia’s economy expanded at its quickest year-on-year rate in nearly 24 months during the second quarter, driven by a surge in household consumption following a series of interest rate reductions. Consumers, benefiting from lower borrowing costs and government tax incentives, became the primary engine of economic momentum, overtaking public sector spending. n nThe Reserve Bank of Australia (RBA) has lowered borrowing costs three times since February, bringing the cash rate to 3.6%, as inflation pressures eased. While this has offered households some financial breathing room, weak business investment and ongoing global economic instability suggest the central bank may need to continue loosening monetary conditions. n nAccording to Sean Langcake, Oxford Economics Australia’s macroeconomic forecasting lead, the latest figures show the economy weathered heightened international uncertainty better than expected in Q2. However, he cautioned that the June quarter might represent a peak for 2025, noting that confidence among businesses and consumers remains fragile and the labor market is gradually softening. n nData released by the Australian Bureau of Statistics revealed that real gross domestic product increased by 0.6% in the second quarter, surpassing the anticipated 0.5% rise and up from 0.3% in the prior quarter. Year-on-year growth accelerated to 1.8%, the strongest since mid-2023 and slightly above the RBA’s end-of-year projection of 1.7%. n nMarkets reacted swiftly: the Australian dollar edged up 0.1% to $0.6525, while three-year government bond futures declined by 5 basis points to 96.48. Investor expectations for a rate reduction in November dipped to 92% from near certainty, and the total anticipated easing for the year fell to 45 basis points from around 50. n nThe central bank has maintained a cautious stance, adjusting policy each quarter based on inflation assessments, with its most recent cuts occurring in February, May, and August. Attention is now shifting toward labor market trends, which, while no longer at peak tightness, are cooling gradually. n nHousehold spending rose 0.9%, with discretionary purchases contributing 0.4 percentage points to GDP growth. Lower mortgage repayments due to rate cuts and improved disposable income from tax relief encouraged spending over saving, as the household savings rate declined to 4.2% from 5.2%. n nTom Lay, head of national accounts at the bureau, attributed the increase in consumption to end-of-financial-year sales and new product launches, particularly in furnishings, household appliances, vehicles, and recreational services. He also noted that the closeness of Easter to ANZAC Day led many households to extend their holidays, boosting demand for leisure-related services. n nGovernment expenditure, which fueled growth in previous periods, contributed minimally this quarter as investment in infrastructure such as roads, rail, and healthcare declined. Private sector investment remained unchanged after a 0.6% increase in Q1, adding little to overall economic activity. n nNet exports provided a modest 0.2 percentage point boost to GDP. Treasurer Jim Chalmers acknowledged the sluggishness in business investment but highlighted positive signs in priority sectors such as housing, renewable energy, critical minerals, and data infrastructure. Dwelling investment rose for the sixth consecutive quarter, a trend he described as encouraging. n nPer capita GDP increased by 0.2% in the quarter, recovering from a previous decline, though this remains subdued relative to robust population growth. n nTony Sycamore, an analyst at IG, commented that while the data makes a September rate cut unlikely, the overall growth trajectory still points to the need for additional monetary easing in the coming months. n
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Australia’s Q2 GDP growth quickens to 2-year high as consumers open wallets
SYDNEY, Sept 3 (Reuters) – Australia ‘s economy grew at the fastest annual pace in almost two years in the second quarter as consumers finally started spending after multiple rate cuts, taking over from the government as the main driver of growth. n nThe Reserve Bank of Australia has reduced rates three times since February to 3.6% as inflation cooled, providing some relief to households but frail business investment and global economic uncertainty will likely maintain pressure on the central bank to ease policy further. n nSign up here. n n”Today’s data are an encouraging confirmation that heightened global uncertainty did not take a heavy toll on the economy in Q2,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia. n n”Still, Q2 may prove to be a high watermark for growth in 2025. The June quarter benefitted from a rebound from a soft Q1, business and consumer confidence are still a little shaky and the labour market appears to be cooling.” n nThe Australian Bureau of Statistics on Wednesday reported real gross domestic product (GDP) rose 0.6% in the second quarter, topping market forecasts of a 0.5% gain. That compared with a 0.3% gain in the first quarter. n nAnnual growth accelerated to 1.8%, from 1.4%, the fastest pace in almost two years and slightly stronger than the RBA ‘s forecast of 1.7% by year-end. n nThe forecast-topping GDP figures pushed up the Australian dollar 0.1% to $0.6525, while three-year government bond futures fell 5 ticks to 96.48. n nInvestors pared back the chance for a rate cut in November to 92%, from almost 100% certainty before the data, while the total easing expected dropped to 45 basis points, from about 50 bps. n nThe central bank has so far adopted a gradual and cautious approach to policy easing, having cut in February, May and August after assessing inflation data for each quarter. The focus is now on the labour market, which has eased from full employment levels albeit at a gradual pace. n nThe bureau said household consumption jumped 0.9%, led by discretionary spending, adding 0.4 percentage points to GDP growth. The rate cuts so far have lowered mortgage repayments for households, with government ‘s tax cuts boosting their cashflows. n nThe household savings ratio eased back to 4.2%, from 5.2%, as consumers chose to spend rather than save. n nTom Lay, head of national accounts at the bureau, said end of financial year sales and new product releases contributed to rises in spending on furnishings, household equipment, cars and recreation. n n”Households took advantage of the proximity of Easter to ANZAC day to extend their holiday break, resulting in rises in discretionary services,” said Lay. n nWEAK GOVERNMENT, BUSINESS INVESTMENTS n nGovernment spending, which was the engine of activity last year, added little to growth as investment in roads, rail and health fell. Private investment was flat after a 0.6% rise in the first quarter, again barely contributing to activity. n nNet exports added 0.2 percentage points to GDP. n nTreasurer Jim Chalmers said business investment will be the key focus as the government has identified areas like housing, renewable energy, critical mineral projects and data centres as a priority. n n”In these numbers today we acknowledge the flatness of business investment, but across almost every area, we are seeing some encouraging developments,” said Chalmers, noting that dwelling investment rose for a sixth straight quarter. n nThe report showed GDP per capita rose 0.2% in the quarter, having slid back into negative territory the previous quarter. That is still modest considering the strong population growth. n n”While today’s numbers all but rule out an RBA rate cut in September, the pace of expansion suggests further loosening of monetary policy is needed,” said Tony Sycamore, analyst at IG. n nReporting by Stella Qiu and Wayne Cole; Editing by Jamie Freed and Shri Navaratnam