Australia GDP growth goes down under zero for the first time in five years

 
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The Australian economy has enjoyed the longest current expansion of any country in the world (Source: Getty)

Australia’s economy contracted for the first time in more than five years in the third quarter, as investment in housing and by businesses dropped steeply.

The quarterly growth rate of Australian gross domestic product (GDP) fell from 0.5 per cent in the second quarter to a contraction of 0.5 per cent from July to September.

The annual rate of growth fell from 3.3 per cent to 1.8 per cent in the third quarter.

Non-dwelling construction investment – mainly investment by businesses – plummeted by 12.4 per cent while gross fixed capital formation, a measure of investment levels, fell by 2.7 per cent after a flat second quarter.

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Recent business confidence surveys have shown a decline in sentiment to below long-term average levels, although levels of the purchasing managers’ indexes (PMIs) were still showing a net positive outlook, and analysts remained sanguine.

“We agree that the decline in output in the third quarter is nothing to worry about since it only reverses some the very strong growth in the first half of the year,” said Paul Dales, chief Australia and New Zealand economist at Capital Economics.

The last time the Australian economy contracted the country was contending with the effects of floods in Queensland in 2011 which forced thousands of people to evacuate their homes. The Australian economy has not recorded two straight quarters of contraction – which would indicate a technical recession – for 25 years.

Australia’s commodities sector helped it to ride out the global final crisis without the economy contracting for two quarters in a row, but the end of the boom in commodities has left parts of the Australian economy exposed.

The decline in GDP growth could prompt an interest rate cut by the Reserve Bank of Australia (RBA) at its next meeting in February.

“The recent weakness supports our view that stubbornly low inflation may yet prompt the RBA to cut rates to 1.0% next year,” said Capital Economics’ Dales.

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