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Australian GDP outlook deteriorates as inflation softens amid loose policy

Australian GDP outlook deteriorates as inflation softens amid loose policy

CANBERRA: Australia’s economy is facing mounting downward pressures, which could potentially snap its longest  among the advanced economies run without a recession. Since June 1991, the nation’s GDP has continuously expanded defying the challenges of the Asian crisis of 1997, the dotcom crash and the Global Recession, both originating the US, and the European debt crisis of the 2010s. Now, as the inflation steadily softens, Australian consumers are not providing enough momentum to the economic expansion. Australian inflation unexpectedly declined in the second quarter of this year, and has remained below the Reserve Bank of Australia’s (RBA) target for six consecutive quarters, stirring fears of a possible economic downturn.

Australia’s household consumption drives some 57.8 percent of the GDP, according to the World Bank, and the softening inflation suggests the broader economy is poised to slow further, as consumers are likely to abstain from spending in the absence of the projected price pressures. The nation’s Consumer Price Index (CPI) increased just 0.2 percent in the second quarter, and 1.9 percent year-on-year, which is below the earlier projections of a 2.2-percent increase. Core inflation advanced by 0.5 percent.  Subsequently, the RBA said they would abstain from soon interest rates hikes as such a move could further complicate the economic growth outlook. Earlier this month, the RBA Governor Philip Lowe said the cash rate would remain unchanged at the accommodative 1.50 percent.

Australia’s significant reliance of commodity exports, primarily, industrial metals, and the related exposure to mainland China’s manufacturing sector dynamics, have resulted in a decline in the mining sector investment in the past two year. Subsequently, the Australian economic growth slowed, and the ongoing structural realignment of the Australian economy suggests only gradual economic improvements over time. Downward factors to Australia’s GDP growth are, however, explicitly present at this point. The nation’s consumer confidence is tepid despite the limited improvements in the labour market. Wage stagnation, a characteristic of many advanced economies, is well pronounced in Australia as well, and is interconnected with the slowdown in inflation rate.