GDP figures decrease chances of September rate cut: economists
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More news: Economists increasingly think a September rate cut is off the cards following better-than-expected economic growth in the June quarter. But the government is under pressure to do more to help the sluggish private sector drive stronger GDP growth.
In a note shortly after the release of the National Accounts, IFM Investors chief economist Alex Joiner said the GDP result came in slightly stronger than he expected, “further weakening the case for another rate cut in September”.
The shift from the public sector to the private sector as the driver of growth is underway but, he said, remains “underwhelming”.
“If we are to keep the unemployment rate low this transition needs to take place to reinvigorate employment growth on a sustainable basis,” he said.
“We should not just leave this process to the RBA cutting rates and clearly there is a role for governments flush with ideas after the Economic Roundtable to facilitate this rotation.”
KPMG chief economist Brendan Rynne also said economic growth was a “lot stronger than anticipated” with consumer spending underpinning the increase.
“Our expectation is that we will likely see one more interest rate cut year. This will push two more into the beginning of next year to bring the cash rate down to a more neutral level of just under 3%,” Rynne said.
Despite the figures coming in hotter than expected, EY chief economist Cherelle Murphy said the economic recovery is “an excruciatingly slow one”.
Private business investment lifted 1% in non-mining industries over the past year, and fell 2.7% in the mining sector. She said this was “troubling”.
“These figures emphasise the need for fresh sources of inspiration for the business sector, against a challenging international economic backdrop,” Murphy said.
“These figures emphasise the need for fresh sources of inspiration for the business sector, against a challenging international economic backdrop,” she said.
Goldman Sachs has maintained its base case for cuts in November and February to a 3.1% terminal rate. Betashares chief economist David Bassanese is also maintaining his forecast for a November cut, provided third quarter inflation data shows the annual trimmed mean is not above 2.6%.
Economy grew 0.6% over the June quarter
The news: The Australian economy grew 0.6% in the June quarter, according to the Australian Bureau of Statistics. The consensus was for 0.5% growth in the second quarter.
The numbers: The economy grew 1.8% over the year to June.
GDP per capita lifted 0.2% over the quarter, after a contraction in March.
The main driver of growth in the June quarter was domestic final demand, with household and government spending the biggest contributors. Government spending was up 1% amid high demand for health services and spending associated with the 2025 federal election.
Public investment took away the most from growth, declining 3.9% and marking the largest drop since 2017 when excluding Covid.
Productivity lifted 0.3% over the quarter.
The context: Economists have raised concerns in recent months that the shift from a public sector-supported economy to the private sector may not be smooth sailing.
Public demand surprised some economists to the downside earlier this week, but net exports were strong, with most maintaining their expectations that GDP growth was sluggish over the second quarter.
What they said: "Economic growth rebounded in the June quarter following subdued growth in the March quarter, which was heavily impacted by weather events," ABS head of national accounts Tom Lay said in a statement accompanying the data.
"Households took advantage of the proximity of Easter to ANZAC day to extend their holiday break, resulting in rises in discretionary services such as hotels, cafes and restaurants and recreation and culture services," Lay said.
Treasurer Jim Chalmers said the data shows the economy is “gathering momentum in the face of global economic uncertainty”.
“This is a welcome and substantial pick-up in growth,” Chalmers said in a statement, noting it was better than most economists had anticipated.
“It is the equal fastest quarterly growth rate in almost three years and the fastest annual growth rate in almost two years.”
He said it was “very encouraging” when compared to economies, such as Germany and Canada, that suffered declines over the quarter. And he noted Australia “now has the equal fastest annual growth when compared to the major advanced economies”.
The source: Australian Bureau of Statistics media release
