By Stella Qiu and Wayne Cole
SYDNEY (Reuters) -Australia’s economy barely grew in the first quarter as consumers stayed stubbornly frugal and government spending, the engine of activity last year, sputtered to a standstill, underlining the need for more policy stimulus.
The Reserve Bank of Australia has already cut interest rates twice since February to 3.85% and the minutes of the May policy meeting showed that it was open to an outsized half-point move as U.S. tariffs darkened the outlook for the global economy.
“The main takeaway is that the expected tentative recovery in private demand continues to underwhelm,” said Pat Bustamante, a senior economist at Westpac. “Without a material pick-up in private demand, the economy could be set for a period of subdued growth.”
Real gross domestic product (GDP) rose 0.2% in the March quarter, slowing sharply from the 0.6% gain in the previous quarter, Australian Bureau of Statistics data showed on Wednesday. That was below market forecasts of 0.4%.
Annual growth flatlined at 1.3%, when analysts had looked for a pick-up to 1.5%, and remained well short of the 2.5% pace that used to be considered “normal”.
The subdued result had been partly priced in after the weak partial GDP data on Tuesday, which had analysts revising down their forecasts to as low as 0.1%. The Australian dollar was little changed at $0.6466 and three-year bond futures trimmed earlier gains to be flat at 96.67.
Swaps imply an 80% probability of a rate cut in July, with a total easing of almost 100 bps priced in to a bottom of 2.85% by early next year.
The ABS said government spending was flat to make the largest drag on growth since 2017. Extreme weather events also affected mining, tourism and shipping and reduced domestic final demand and exports, it added.
GDP per capita was back in negative terrain, falling 0.2% in the quarter after a small rise previously.
“While there may be a temptation to overlook the adverse impacts of the weather, the lack of acceleration in the annual growth rate reinforces the case for the RBA to continue easing,” said Tony Sycamore, analyst at IG
“We expect the RBA to cut rates by 25 basis points at its meeting in July, bringing it to 3.60%.”
ANY GROWTH IS WELCOME
Treasurer Jim Chalmers on Wednesday welcomed the still positive growth against the uncertain global economic outlook.
“With all the uncertainty in the world, any growth is a decent outcome even modest growth is welcome in these global economic circumstances,” Chalmers told a press conference.
