Australian economic growth slows down year-on-year in Q2, private sector demand remains flat

Australian economic growth remained flat on a quarter-on-quarter basis in the second quarter, while it continued to decelerate on an annual basis. The detail of the report indicates that the public sector is mainly boosting the growth, whereas private sector demand remained flat.

Another weak outcome for the economic growth in the second quarter caps off a subdued year of growth, noted ANZ in a research report. The deceleration in the economy has been remarkable. On a quarter-on-quarter basis, the economy grew just 0.5 percent, whereas the growth slowed down to 1.4 percent year-on-year, the slowest since 2009 in the midst of the global financial crisis.

Delving into details, public sector positively contributed 1.3 percentage points to the headline growth of 1.4 percent. Private sector demand remained flat in the second quarter and dropped 0.4 percent year-on-year.

Today’s release would be a disappointment for the Reserve Bank of Australia, which had anticipated a 1.7 percent growth on a year-on-year basis for the quarter, and implies that another round of growth downgrades is possibly in the Bank’s November Statement on Monetary Policy. Today’s report indicates that softness in the economy has become more widespread, with the supports to growth more narrow.

House construction growth dropped 4.4 percent, while business investment dropped 0.4 percent. The household sector also remains under pressure, with soft income growth and the earlier fall in house prices being a drag on consumer spending, which rose just 0.4 percent.

“Q2 is likely to be the low point in the cycle, with stimulus in the form of tax cuts and rate cuts helping to support stronger outcomes in H2. The reality is, however, that the underlying momentum in the economy remains very soft, and further support from monetary policy is likely to be required in time”, added ANZ.