Australia's economy grows at half pace of forecast on China woes

[SYDNEY] Australia's economy expanded at a slower pace than economists forecast in the three months through June - only propped up by government and household spending - as a slowdown in key trading partner China weighed on growth. The currency slumped.

Gross domestic product advanced 0.2 per cent from the first three months of the year, when it rose 0.9 per cent, government data showed on Wednesday. That compared with the median of 27 estimates for a 0.4 per cent gain.

Firms in Australia - an engine room of the decade-long global commodity boom - plan to cut investment in the next 12 months, betting they can meet demand from heavily indebted households with existing capacity.

The report spans a period when Australia cut interest rates for the second time this year to a record-low 2 per cent to offset falling commodity prices, even as the currency gained during the quarter, weakening companies' competitiveness.

"We expect growth to continue to trudge along at a below- trend rate," Felicity Emmett, a senior economist at Australia & New Zealand Banking Group Ltd. who forecast a 0.2 per cent gain, said ahead of the release. "The outlook for non-mining investment remains quite uncertain and household spending growth is likely to continue to be weighed down by soft household income growth."

The local dollar traded at 69.95 US cents at 11.37am in Sydney from 70.29 cents before the release.

Compared with a year earlier, the economy expanded 2 per cent in the second quarter, the report showed. The median forecast of economists was for a 2.2 percent rise.

General government spending rose 2.2 per cent in the second quarter, adding 0.4 percentage point to GDP growth, the report showed. Household spending advanced 0.5 per cent last quarter, adding 0.3 point to the expansion, it showed. Exports slumped 3.3 per cent, subtracting 0.7 percentage point from GDP growth while dwellings fell 1.1 per cent, subtracting 0.1 point.

The nation's household savings ratio rose to 8.8 per cent in the second quarter from 8.3 per cent in the first three months of this year, it showed.

"Most of the available information suggests that moderate expansion in the economy continues," central bank Governor Glenn Stevens said Tuesday after leaving rates unchanged. "Overall, the economy is likely to be operating with a degree of spare capacity for some time yet."

BLOOMBERG