Australia’s economy grew moderately in the second quarter, easing recession fears

Australia’s economy grew faster than expected in the second quarter, boosted by exports and investment, while household consumption remained weak as a decade’s high interest rates cooled demand. Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product (GDP) rose 0.4 percent in the second quarter, slightly beating forecasts of 0.3 percent. This compares to an upwardly revised growth of 0.4 percent in the first quarter.

Annual growth was 2.1 percent, beating expectations of 1.8 percent. The world’s 12th largest economy benefited from net exports, returning students and tourists, and public investment. Taken together, they more than offset the significant decline in corporate inventories. “Despite all the challenges, the Australian economy remains remarkably resilient,” said Harry Murphy Cruise, economist at Moody’s Analytics.

“Looking ahead, growth will be weak…Household budgets will remain under pressure. Government consumption will also ease from its elevated levels and business investment will slow as profits have fallen.”

Household consumption, once the engine of growth, remained subdued on spending on essential goods and services, rising just 0.1 percent in the quarter.

Consumers continued to save less amid the high cost of living and rising mortgage payments, which rose another 11 percent in the quarter. Their savings rate fell further to 3.2 percent, the lowest level since 2008.

The Reserve Bank of Australia (RBA) kept interest rates unchanged for the third straight month on Tuesday, bolstered by signs that inflation is easing more than expected and economic growth is slowing.

Markets see a good chance that the RBA will be done, but the majority of economists expect another rate hike to curb inflation by the end of the year.

Treasurer Jim Chalmers said the GDP report was a “steady and resilient” outcome in challenging circumstances and the economy is expected to slow significantly due to high interest rates and global uncertainty, particularly around China.

“We are realistic about the challenges over the next 12 months, but we are optimistic about the future of our economy and our country,” said Chalmers, who does not expect the economy to slide into recession.

Wednesday’s GDP report showed that productivity remained a concern: A productivity measure of GDP per hour worked fell a sharp 2 percent, the third straight quarter of declines.

Unit labor costs continued to rise strongly in the quarter, with annual growth of 7.2 percent.

“Although inflation has peaked, this will be an ongoing concern for the RBA,” Sean Langcake, head of macroeconomic forecasting at BIS Oxford Economics, said of labor costs.