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Australian economy grows slightly more than expected in Q2

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— The Australian economy grew a touch above expectations in the second quarter, data showed on Wednesday, as strong exports and infrastructure spending helped offset the impact of sticky inflation and high interest rates.

for the three months to June 30 grew 0.4% from the prior quarter, slightly above expectations of 0.3%, and the prior quarter’s 0.2%, data from the Australian Bureau of Statistics (ABS) showed.

On an annualized basis, grew 2.1%, compared to expectations for growth of 1.7% and the 2.3% seen in the first quarter.

But while Wednesday’s data beat expectations, growth still remained relatively subdued. The reading marked a continuation from the prior quarter, where quarterly economic growth had almost flatlined amid pressure from high inflation and interest rates.

Inflation came further off 2023 peaks during the June quarter, while the Reserve Bank has held off any further interest rate hikes to further gauge their economic impact, providing some relief to the economy.

A positive trade balance was the biggest contributor to the GDP figure, although export prices fell sharply through the quarter as global commodity prices and inventories stabilized. Higher fuel inventories in Australia’s biggest export destinations also kept demand subdued.

Still, spending by foreign tourists, which is also counted as an export, helped push up the overall trade surplus.

Public and private sector investments also drove up growth, as Canberra rolled out a slew of more infrastructure projects through the quarter, while companies also undertook more capital spending.

But on the other hand, household savings and consumer spending deteriorated through the quarter, amid pressure from inflation and interest rates. Consumer discretionary spending fell for a third straight quarter, as households tightened their purse strings in the face of rising living costs. While a strong jobs market has helped somewhat offset this trend, the labor market was seen cooling in recent months.

Weakness in China, Australia’s biggest trading partner, also saw local commodity importers grappling with weak export prices, especially as demand in the mainland slowed further.

The Australian economy is closely linked to China, with headwinds in the mainland- particularly in its property market and manufacturing sector- spilling over into Australia.

The Australian economy is expected to remain largely subdued in the coming quarters, with the Reserve Bank forecasting below-average growth until at least 2025 due to high inflation and interest rates.

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