SYDNEY (AFP) – Australia’s economy slowed more than expected in the third quarter, dragged down by falling private investment, data showed Wednesday, in another sign of the nation’s rocky transition away from mining-led growth.
The economy expanded by 0.3 per cent in the three months to September, down from 0.5 per cent in the previous quarter, to take the annual rate of growth to 2.7 per cent, the Australian Bureau of Statistics said.
“These national accounts reflect, quite starkly, the resources sector switching from significant investment to significant production,” Treasurer Joe Hockey told reporters.
“Iron ore production in particular has picked up more strongly than expected at budget time (in May). However, prices for iron ore and thermal coal, two of our biggest exports, have fallen dramatically in recent times.”
The new readings were well below analysts’ forecasts of 0.7 per cent quarterly growth for a year-on-year rate of 3.1 per cent, and sent the Australian dollar plunging three-quarters of a cent.
The local unit fell from the day’s high of 84.69 US cents to a fresh four-year low of 83.92 US cents.
“There’s always two sides to a boom,” JP Morgan economist Tom Kennedy told AFP. “We’ve had the good side of it, and now we are seeing a little bit of unwind from the investment boom.
“It looks like almost all of the surprise here is from the private capex front, which took off 0.5 (percentage points) from GDP and we were expecting a much smaller drag from that.”
Net exports supported growth, expanding by a seasonally adjusted 0.8 percentage points while consumer spending rose by 0.4 percentage points. But private capital spending slipped by 0.5 percentage points and public investment eased by 0.2 percentage points.
Australia’s economy is transitioning away from resources driven-growth amid an expected drop off in mining investment, supported by the Reserve Bank’s decision to keep interest rates at a record low of 2.5 per cent.
The mining investment boom has helped to keep the economy out of recession for more than two decades, with Chinese demand for Australia’s resources helping to insulate it through the global financial downturn.
But as business spending declines, growth has slipped below trend while the unemployment rate has edged up to a decade high of more than 6.0 per cent.
Sharp falls in commodity prices, particularly due to a slowdown in major consumer China and global supply glut, have also hit Australia’s growth.
The terms of trade declined 3.5 per cent, the data showed, while real gross domestic income – a measure of the nation’s earnings – fell by 0.4 per cent, after declining 0.3 per cent in the June quarter.
“That’s the second consecutive (quarterly) decline, and arguably means that Australia has been in an income recession for the first time since the financial crisis,” Bank of America Merrill Lynch’s chief economist Saul Eslake told AFP.
“The rest of the world is paying us less for what we sell to them… it helps explain why unemployment has been rising, why spending has been weak and why Joe Hockey’s going to write down the revenue side of his budget later this month.”
Economists said the figures were broadly in line with the central bank’s outlook and reinforced its decision to maintain an accommodative monetary policy stance and call for a weaker exchange rate to support non-mining industries.
The RBA in November forecast an expansion rate of 2.5 per cent in the year ending December, and for GDP growth to come in between 2-3 per cent in the 12 months to June 2015.