The Australian economy grew at the quickest annual pace in close to two years in Q2, as consumers began to resume spending after numerous rate cuts, taking over from the government as the principal growth driver.
The Reserve Bank of Australia (RBA) has cut rates three times since February to 3.6% as inflation softened.
This provided a degree of relief to Australian households, but weak business investment coupled with global economic uncertainty is likely to keep pressure on the RBA to cut rates further.
“Today’s data are an encouraging confirmation that heightened global uncertainty did not take a heavy toll on the economy in Q2,” according to Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
“Still, Q2 may prove to be a high watermark for growth in 2025. The June quarter benefitted from a rebound from a soft Q1, business and consumer confidence are still a little shaky and the labour market appears to be cooling.”
On Wednesday the Australian Bureau of Statistics reported real GDP increased 0.6% in Q2, surpassing market forecasts of a 0.5% rise. In Q1, GDP grew 0.3%, Reuters reports.
Annual growth accelerated from 1.4% to 1.8%, the quickest in close to two years, and slightly surpassing the central bank’s 1.7% forecast by year-end.
Consequently, the GDP figures drove up the Aussie Dollar 0.1% to $0.6525, whilst three-year government bond futures declined 5 ticks to 96.48.
In addition, investors reduced the chance of a November rate cut to 92%, from close to nearly 100% before the data, with the total easing forecast to decline to 45 basis points, from around 50 bps.
Up to now the central bank has adopted a cautious approach to policy easing, reducing rates in February, May and August after reviewing inflation data for each quarter.
All eyes are now on the labour market, which has eased from full employment levels.
Moreover, household consumption rose 0.9% according to the bureau, fuelled by discretionary spending, which added 0.4 percentage points to GDP growth. So far the rate cuts have reduced household mortgage repayments, with government's tax cuts bolstering their cashflows.
Indeed, the household savings ratio eased from 5.2% to 4.2% as consumers opted to spend as opposed to save.
End of financial year sales and new product releases led to increases in spending on furnishings, household equipment, cars and recreation, according to head of national accounts at the bureau, Tom Lay.
“Households took advantage of the proximity of Easter to ANZAC day to extend their holiday break, resulting in rises in discretionary services,” he said.