SYDNEY – Australia’s economy slowed sharply in the second half of 2018, confounding an optimistic message from the country’s central bank and stoking the case for interest-rate cuts before the end of the year.
Gross domestic product grew by 0.2% in the fourth quarter from the previous three months and by 2.3% from a year earlier, the Australian Bureau of Statistics said on Wednesday.
The soft result follows growth of just 0.3% in the third quarter, marking the weakest consecutive quarters of expansion since the Reserve Bank of Australia last cut interest rates in mid-2016.
Construction fell sharply in the fourth quarter, in line with a downturn in the housing market, while agriculture also declined as a widespread drought hurt grain production.
A slowdown in consumer spending and weakness in net exports have also put a brake on the economy.
The slowdown has stumped the RBA which has been highlighting robust growth in the labor market, where hiring has continued, while the unemployment rate has remained low.
In a speech ahead of the GDP data, RBA Governor Philip Lowe said there was growing tension between weaking output in the economy and evidence that the jobs market is still strong. He hopes that will resolve itself soon.
“We have the flexibility to adjust monetary policy in either direction as required... At the moment, the probabilities appear reasonably evenly balanced,” Lowe said in a speech to the AFR Business Summit.
The RBA has held interest rates at a record-low 1.50% since mid-2016, hoping crossed for a rise in wages, and inflation, which has so far been elusive.
Weak consumer spending and falling house prices top the list of concerns for the economy, with trade tensions and a slowdown in China’s economy also weighing on confidence.
House prices have been falling since mid-2017, with the major state capitals of Sydney and Melbourne leading the retreat.
Some forecasters expect the peak-to-trough fall in Sydney house prices to be close to 20%, if not more.