Australia’s economic growth slows by less than expected, but risks are building

SYDNEY — Growth for Australia’s commodity-rich economy slowed by less than expected in the second quarter but economists are continuing to warn that a scarring recession remains possible if consumer spending crumbles and a full-blown economic crisis emerges in China over coming months.

Gross domestic product grew 0.4% in the second quarter from the first quarter, and by 2.1% from the year-earlier period, the Australian Bureau of Statistics said Wednesday.

Economists had expected growth of 1.7% from the year-ago quarter, slowing from 2.3% growth in the first quarter.

The economy has been slowing over the last year as the Reserve Bank of Australia has piled on 400 basis points in official interest-rate increases to cool consumer-price inflation, which had been racing at its fastest pace since the 1980s.

The RBA this week kept the official cash rate steady at 4.1% for a third month in a row, but left open the possibility of further increases if wages growth accelerates over the second half of the year and inflation remains sticky.

The decision to hold interest rates came with a fresh acknowledgement from the RBA that China’s economy, which buys vast amounts of raw materials from Australian mines, is entering a period of weaker growth.

Solid government spending and a strong export performance helped underpin growth in the economy through the second quarter, while surging postpandemic migration also added to demand.

But there are clear signs now that consumers are feeling the sting of surging mortgage interest rates and are searching for new ways to pull back spending.

“The national accounts show the Australian economy remaining sturdy in the face of unrelenting pressure,” Treasurer Jim Chalmers said in a statement.

“Economic growth held up relatively well in the second quarter, despite the inevitable toll of high interest rates, high but moderating inflation and continuing global uncertainty, including the slowdown in China,” Chalmers added.

Over a million Australian homes are now experiencing a massive jump in home loan repayments as ultralow fixed mortgage interest rates convert to sharply increased variable rates.

The migration from low to high interest rates is now at full throttle, with the RBA watching closely the impact on household finances and confidence.

Investment rose 2.4% over the quarter, helped by growth in areas such as transport infrastructure and national defense, the ABS said.

Meanwhile, services exports rose 12.1% from the previous quarter, driven by travel services, as the number of international students and tourists to Australia continued to recover from the Covid-19 pandemic, it said.

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