Australian economy boosted by consumer spending and exports in Q2

By Wayne Cole

SYDNEY, September 7 (Reuters)Australia’s economy accelerated in the June quarter as consumers continued to spend and energy exports boomed, raising hopes that activity can withstand sharply higher interest rates and cost of living pressures.

Data from the Australian Bureau of Statistics on Wednesday showed gross domestic product (GDP) rose 0.9% in the second quarter, in line with forecasts and up from the 0.7% rise in the first quarter.

Annual growth accelerated to 3.6% as the lowest unemployment rate in nearly five decades supported household incomes and spending.

Indeed, the economy was so resilient that the Reserve Bank of Australia (RBA) had to embark on an ultra-aggressive tightening campaign in an attempt to cool activity and contain runaway inflation.

The central bank on Tuesday raised its key rate by 50 basis points to a seven-year high of 2.35%, bringing the total tightening since May to 225 basis points.

Markets 0#YIB: are leaning towards another half-point hike in October, and for rates to hit 3.85%, given that inflation hits a 21-year high of 6.1% and is expected to top 7% in here Christmas. 0#RBAWATCH

Inflation was widespread in the GDP report with its main price index jumping 6.9% for the year, the fastest pace since 1988/89.

Employee compensation, a proxy for wages, posted the biggest increase since 2010 as companies were forced to pay to attract and retain staff amid an unemployment rate of just 3.4%.

Consumers, however, were still unintimidated and household spending added 1.1 percentage points to growth in the quarter. They can afford to keep shopping as the savings rate has fallen to 8.7%, still well above pre-pandemic levels.

“Households increased spending on domestic and international travel as COVID restrictions eased further and international borders remained open,” said Sean Crick, national accounts manager at ABS.

“While transport spending has risen sharply, households were still spending only two-thirds of what they were doing before the pandemic.”

Australian miners were also full of cash as a global energy rush sent coal and gas prices soaring. Coal alone brought in more than A$100 billion in the year to June, helping exports contribute 1.1 percentage points to second-quarter GDP.

All of those dollars showed up in nominal GDP which jumped 4.3% in the quarter and 12.1% for the year, taking output to a record AU$2.3 trillion ($1.54 trillion dollars).

($1 = 1.4894 Australian dollars)

(Reporting by Wayne Cole; Editing by Jacqueline Wong & Shri Navaratnam)

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