Australia’s economy slows ahead of election

A man places an Australian national flag following a dawn memorial service for Australian and New Zealander soldiers. (Reuters pic)

SYDNEY: Australia’s economic growth ground to a near halt in the second half of last year, official data showed Wednesday, thrusting the issue front and centre of an already contentious general election campaign.

The economy grew at 2.3% last year, Australia’s statistics agency said, but slowed considerably in the second half of the year as consumer spending weakened and storm clouds gathered in the long-booming housing market.

Growth for October to December stood at 0.2%, after a 0.3% reading in the previous three months.

The data are a setback for conservative Prime Minister Scott Morrison, who has based his re-election campaign on his stewardship of the economy.

On the hustings, he has repeatedly warned Australians that electing the centre-left Labour party in an expected May election would spell an end to 28 years of continuous growth.

It was the increase in public spending of 1.8% in the fourth quarter – as Morrison opened his chequebook for a slew of pre-election community programmes – that helped the economy avoid tipping into negative territory.

Treasurer Josh Frydenberg tried to strike an optimistic note, telling reporters that the “economy and its fundamentals are strong”.

“The fact that we are growing at a faster rate than any G7 country except the United States is a testament to that,” he said.

But the opposition Labour Party said the figures showed the government had “lost the moral authority to campaign and talk about the economy”.

Shadow treasurer Chris Bowen seized on the fact that with population growth stripped out, the latest figures confirmed a “per capita” recession.

GDP per capita contracted by 0.2% for the fourth quarter, after shrinking 0.1% in the previous three months.

“For the first time in 13 years, we have had two negative quarters, per head, of economic growth,” Bowen told reporters.

The Australian dollar shed one-third of a US cent to 70.52 US cents in response to the figures.

‘Fragile economy’

Economists voiced concern about underlying weaknesses in the G20 economy.

“The aggregate number looks OK because it is being supported by population growth, but when you drill down to the actual numbers, spending per head is actually slowing, which is more representative of a fragile economy,” JP Morgan economist Tom Kennedy told AFP.

With property prices tumbling, debt at high levels and wages growth remaining soft, “there’s not a great deal of discretionary income out there for consumers”, he added.

The central bank on Tuesday kept interest rates at a record low of 1.5% as it waits to see if a strong labour market – with the jobless rate at 5.0% – feeds into higher wages.

But markets are increasingly expecting up to two 25-basis-point cuts by the end of 2019.

“We believe the Bank will be increasingly uncomfortable with the ‘growing tension between strong labour market data and softer GDP data’ as the weakness in household spending appears to be more persistent than it forecast,” National Australia Bank economist Kaixin Owyong said in a note to clients.

“Should the progress in the labour market falter over the next few months, the bank will likely be forced to cut rates to support households.”