<\/p>\n
Australia\u2019s economic growth remained sluggish last quarter as a surge in government spending underpinned the expansion, highlighting the Reserve Bank of Australia\u2019s (RBA) policy challenge as inflation is still stubbornly sticky.<\/p>\n
Gross domestic product rose 0.8 per cent from a year earlier, the weakest reading \u2013 excluding the pandemic \u2013 since December 1991, when the economy was mired in recession, official data showed. On a per capita basis, GDP slid for a seventh consecutive quarter, also the worst result since 1991.<\/p>\n
The data sparked a drop in the currency \u2013 down 0.7 per cent \u2013 and a fall in policy sensitive three-year government bond yields. Swaps traders boosted bets to fully price an April interest-rate cut, compared with about 60 per cent odds on Tuesday.<\/p>\n
\u201cWeak growth highlights the need for interest rate cuts but this is difficult for the RBA to deliver given inflation remains uncomfortably high,\u201d said Alex Joiner, chief economist at IFM Investors. \u201cThe economy remains over-reliant on the public sector and population growth and suffers from a lack of productivity. This growth mix will need to change.\u201d<\/p>\n
The RBA has been trying to slow demand in the economy to ease price pressures, and while it has succeeded in the former, the latter is failing to follow the script. Inflation has only come down slowly and at an underlying level remains above the central bank\u2019s 2 to 3 per cent target.<\/p>\n
Annual economic growth looks set to fall short of the RBA\u2019s forecast 1.5 per cent by year\u2019s end, and is well below the decade average of 2.3 per cent.<\/p>\n
The result is also going to intensify pressure on the government to keep increasing spending to support the economy, particularly as it faces a tight election due in the next six months. The one consistently positive metric has been the labour market, with hiring holding up and unemployment still at a historically low 4.1 per cent.<\/p>\n
The upshot has been a cautious central bank that has kept the cash rate at 4.35 per cent for the past year. By comparison, the US Federal Reserve may cut for a third straight meeting this month.<\/p>\n
The report showed the household savings ratio climbed to 3.2 per cent as Australians saved tax cuts and government cost-of-living support measures.<\/p>\n
Household spending was flat and contributed nothing to third-quarter GDP growth. A key factor there was electricity and gas spending as energy bill relief rebates were treated as a shift from household to government expenditure in the national accounts.<\/p>\n
Further complicating the RBA\u2019s inflation fight is Australia\u2019s poor productivity, economists said, data showing GDP per hour worked fell again last quarter.<\/p>\n
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