The Abbott government’s “jobs and growth” slogan will come under further scrutiny on Wednesday with economists predicting sluggish, and possibly negative, growth when the June quarter figures are released.
The Reserve Bank of Australia left its key interest rate at a record low on Tuesday on the eve of what is expected to be a limp set of economic growth figures.
As the share market and Aussie dollar were hit by renewed uncertainty about the Chinese growth, the central bank said a cash rate of 2% was appropriate for an economy that is expected to be growing below its long term average of 3 to 3.25% “for some time yet”.
Economists expect Wednesday’s national accounts will show the economy grew at about 0.5% in the June quarter, half the pace recorded in the previous three months. That would translate to annual growth of around 2.2%.
But some experts believed that economic activity may even have shrunk in the three months to the end of June.
Figures released on Tuesday showed that the country’s trade deficit ballooned to $19bn for the second quarter compared with $13.5bn in the first three months of the year.
A fall in exports thanks to poor weather in April which closed coal ports cut a larger than expected 0.6 percentage points from growth although other data showed government spending in the same period was larger than forecast.
Shane Oliver, chief economist at AMP, said the firm had revised its Q2 forecast downwards to 0.1% and would be “no surprise” if Wednesday’s number was negative.
The ASX200 share index experienced a torrid day on Tuesday, falling 2.12% to close at 5096, after two surveys showed China’s huge manufacturing sector was contracting. Other key markets across the region, including the Nikkei in Japan and the China’s own Shanghai Composite, also finished in the red.
The Australian dollar also struggled and was buying US70.80c at 6.30pm. Deutsche Bank’s Australian chief economist, Adam Boyton, said continued soft demand for resources and slower growth in China were among the factors that could force the Australian dollar below US60c to its lowest value against the greenback since at least early 2003.
But the assistant federal treasurer, Josh Frydenberg, played down speculation that the economy could be set to shrink.
He pointed to the ASX 200 companies, of which 170 had reported to date and 61% achieved better results than the previous year. A lower Australian dollar, low interest rates and energy costs were all factors contributing to good growth across the economy, he said.
Yet the latest Essential Research online poll found 41% of respondents saying the economy is heading in “the wrong direction”, compared with 35% who said it was heading the right way, and more than half saying they were concerned about the cost of electricity and gas.
But a separate survey, the weekly ANZ-Roy Morgan gauge of consumer confidence, showed sentiment rising by 0.3%, a third consecutive week it has held above its long-term average.
ANZ’s chief economist, Warren Hogan, said this was a surprising result given last week’s volatility in the Australian and global stock markets.
