SYDNEY (Reuters) – Growth in Australia’s economy picked up only modestly last quarter but the annual pace braked to the slowest in a decade, cementing the case for further easing in monetary policy and more stimulus from the government.
The gross domestic product (GDP) figures out on Wednesday showed the A$1.9 trillion ($1.3 trillion) economy expanded 0.4% in the three months ended March, from 0.2% in the fourth quarter and missing expectations for a 0.5% increase.
Government spending and exports were the main contributors to growth in the quarter while household spending further slumped to contribute just 0.1% to the country’s GDP.
Annual GDP rose a below-trend 1.8%, the weakest since the global financial crisis as sluggish wages and falling home prices crimp consumer spending.
Wednesday’s data means growth will have to pick up remarkably in the current quarter to achieve the Reserve Bank of Australia’s (RBA) downgraded forecast of 1.7% for the 12-months to June 30.
“If you look at components of growth, they are pretty consistent with what the partial data were telling us. It highlights very weak domestic demand in the quarter,” said RBC economist Su-Lin Ong.
“The economy continues to grow at below trend pace and this weakness is likely to persist this year. This makes the RBA’s forecast look optimistic.”
Worried about a slowing economy, rising unemployment and lukewarm inflation the country’s central bank on Tuesday cut rates to an all-time low 1.25% on Tuesday, marking its first easing in nearly three years.
Rates futures imply a 50-50 chance of another cut to 1.00% next month. A majority of 44 economists polled by Reuters predict a second cut in August with some also expecting a third move.
In a speech late on Tuesday, RBA Governor Philip Lowe said it was “not unreasonable” to expect a lower cash rate from here, signalling the door was wide open for further easing.
($1 = 1.4306 Australian dollars)
Reporting by Swati Pandey; Editing by Sam Holmes