By James Glynn
SYDNEY--Australia's resource-rich economy slowed sharply in the third quarter as consumers fretted about accelerating house price falls, flat wages growth, and record debt.
Economists warned the weak third quarter result raises the specter of a soft 2019 for the economy, likely pushing back moves by the central bank to raise interest rates well into 2020.
Gross domestic product expanded 0.3% in the three months through September, half that expected by economists, and well below 0.9% in the second quarter, the Australian Bureau of Statistics said Wednesday.
Year-over-year growth slowed to 2.8% from 3.4%, a pace not likely to support further falls in unemployment.
The growth slowdown came through cooling consumer spending, with household budgets strained under heavy debts, a problem exacerbated by more than half a decade of flat incomes growth.
Australian house prices have also been falling for over a year due to added curbs on mortgage lending, with the retreat gathering pace in November.
The Sydney property market, the country's biggest, is on track for its largest drop since the economy's last recession in the early 1990s, according to research house CoreLogic.
Consumer spending grew by 0.3% in the third quarter, a 5-year low and household savings have fallen to an 11-year low.
The GDP data has cast doubt over the Reserve Bank of Australia's recent forecasts for the economy to expand consistently above 3% in the next few years.
The central bank has long highlighted the biggest risk to growth is the vulnerability of consumer spending.
RBA board member Ian Harper told The Wall Street Journal in a recent interview that even a small retreat in consumer spending would see the broader engine of the economy to start spluttering.
Earlier this week, Morgan Stanley abandoned a forecast for interest rates to rise twice in late 2019 as risks to consumer spending have grown. It now sees an increase in 2020.
Shane Oliver, economist at AMP Capital said he now expects the next move in interest rates to be down in 2020 as tumbling house prices take a toll on confidence.
The Australian dollar was crunched on the report, falling by half a U.S. cent to US$0.7300.
But beyond the uncertainty surrounding consumer spending, there are some bright spots to the economy. Liquefied natural gas exports have surged in recent years as new productive capacity has come on stream, while major iron ore miners plan new investments amid a solid commodity price outlook.
Australia's unemployment rate has also fallen to its lowest level in 6 years, giving economic forecasters some confidence that incomes will grow.
Government infrastructure spending is giving the economy a lift, with low borrowing costs and improving budgets allowing state governments scope to construct large transport projects around capital cities.
Still, 2019 will see Australians go to a federal election, likely in May. Current polls suggest the conservative coalition government will be ousted in favor of the center-left Australian Labor Party.
Economists warn political uncertainty could form an added headwind to growth in 2019.
Write to James Glynn at firstname.lastname@example.org
(END) Dow Jones Newswires
December 04, 2018 22:57 ET (03:57 GMT)
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