Plummeting prices for Australia’s mining exports have dragged economic growth down to its slowest pace in more than two years.
Australia’s economy grew by a weaker-than-expected 0.2 per cent in the June quarter, down from 0.9 per cent in the previous three months.
While the economy has now notched up its 24th year of growth, the last time it expanded at such a slow pace on a quarterly basis was in the first three months of 2013.
Annual growth came in at two per cent, or about two thirds of Australia’s long-run average of 3.0 to 3.25 per cent.
The biggest drag on growth were falls in exports and weakness in business investment, offsetting rises in consumer and government spending.
Macquarie senior economist James McIntyre said falling commodity prices, particularly for iron ore, were a blow to economic growth.
“The world is giving us a pay cut and it means the amount of income the economy is getting is declining,” he said.
“That reflects that hit from commodity prices and that hit has been translating all the way through the economy.”
Mr McIntyre is sticking to his forecast for a November interest rate cut from the Reserve Bank.
“What we’re seeing across the economy from the income side means that we’ll just get enough to see a (growth forecast) downgrade that would give the RBA the case to cut,” he said.
Australia is not the only country that is suffering from the heavy falls in commodity prices, with data showing that Canada has gone into recession.
Canada, a major mining exporter and one of the top five oil producers has been particularly hurt by the falling oil price, which has halved in the past year.
Other commodity exporters such as Brazil and Russia have also recorded falls in GDP recently.
CommSec economist Savanth Sebastian said it is quite a feat that the Australian economy is still managing to grow, despite falling commodity prices and a sluggish manufacturing sector.
“The key point is that Australia has completed 24 consecutive years of growth. It is an achievement to be celebrated,” he said.
“It is pretty clear that the economy is in reasonable shape certainly in better shape than most other so-called advanced economies.”
AMP Capital chief economist Shane Oliver said June quarter GDP might have shrunk were it not for a surge in government spending and a rise in investment in Western Australia.
However he added that the detraction from growth from weaker exports and flat inventories is not likely to be repeated, which should allow growth to bounce back to around 0.5 per cent in the September quarter.
“What is concerning is that the outlook for non-mining investment remains weak,” Dr Oliver said.
“Ongoing sub-par growth is likely to drive the RBA to cut rates again and the Australian dollar is on its way to around 60 US cents.”