Australia’s economy experienced slower-than-expected growth in the third quarter, as higher borrowing costs and persistent inflation continued to impact the country’s economic performance. The Australian Bureau of Statistics reported on Wednesday that the country’s real GDP rose by just 0.3% in the three months through September, following a 0.2% growth in the previous quarter. This growth missed expectations, which had forecast a 0.4% increase. On an annualized basis, Australia’s economy grew by 0.8%, also falling short of the Reuters forecast of 1.1% growth, and down from the 1% rise recorded in the previous 12 months through June.
Despite the slower growth, economists expect the economy to slowly pick up in the coming quarters. Sean Langcake, head of macroeconomic forecasting at Oxford Economics, noted that while an improvement in consumption would be positive, any recovery is likely to be “unspectacular.” He added that the economy is expected to experience “below trend growth in the near term.”
The Australian economy has been on a slowing trend for the past two years, largely due to the Reserve Bank of Australia’s (RBA) tightening of monetary policy. Since May 2022, the RBA has raised interest rates by a substantial 425 basis points. As of late last year, the central bank has maintained the benchmark interest rate at a 13-year high of 4.35%.
In terms of inflation, the headline consumer price index (CPI) for the third quarter slowed significantly to 2.8%, aided by government energy bill rebates. However, core inflation, which excludes energy and automotive fuel prices, remained high at 3.5%, despite falling to its lowest level in over two years. This still sits above the RBA’s target range of 2% to 3%. RBA Governor Michele Bullock emphasized last week that core inflation remains “too high” to justify considering interest rate cuts in the near future.
The RBA has made it clear that its monetary policy will stay restrictive until there is confidence that underlying inflation is on track to approach the midpoint of the target range, 2.5%. The central bank is set to hold its next policy meeting on December 10, with officials widely expected to maintain the current cash rate. The RBA’s latest forecasts, published last month, predict that core inflation will ease gradually to 2.5% by late 2026.
