Australia's quarterly growth slows to 0.1 percent

Mon Dec 1, 2008 11:48 PM EST

business, economy, australia, as, australia-economy

SYDNEY — Australia's economy scraped bottom in the third quarter, growing at its slowest pace in eight years as the global financial crisis sapped consumer spending and demand for the country's vast reserves of iron ore and other resources.

Gross domestic product expanded just 0.1 percent in the three months to September 30 on a seasonally adjusted basis, taking the figure for the year to date to 1.9 percent, the Australian Bureau of Statistics said Wednesday. The government's growth forecast for 2008 is 2 percent.

Australia has enjoyed an unprecedented 17 years of economic growth, fueled largely by voracious demand from China and other fast-developing countries for the country's coal and steel-making resources. The boom filled the government's pockets with tax revenue but also pushed interest rates higher as the central bank sought to control inflation.

The global financial turmoil has turned all that around. Commodity prices have plummeted, the Reserve Bank of Australia reversed six years of rate rises in just three months, and Prime Minister Kevin Rudd has raided the budget surplus for an Australian dollars 10.4 billion ($6.7 billion) stimulus package.

The third quarter data covers a period that ended before the first of four consecutive interest rate cuts and the government spending package were announced — moves designed to boost consumer spending to keep the economy moving.

The figures show that a 15 percent increase in farming sector output saved the economy from contraction in the third quarter, with consumer and other spending sagging. Without the farming increase, the economy would have shrunk by 0.3 percent, the bureau said.

Treasurer Wayne Swan on Tuesday said the growth figures could have been worse.

"This is a positive outcome for Australia, particularly in the context of a global recession," Swan told reporters in the national capital of Canberra, noting that the United States' and major economies in Europe and Asia had contracted in the same period.

"Today's figures show we can't completely resist the pull of international economic forces but we are better placed than many other nations to deal with this global financial crisis," he said. "We have a strong, well-regulated financial system and plenty of policy ammunition" to fight off recession.

Analysts agreed the data indicated that Australia was faring better than some other countries, but warned a contraction — if not recession — was still a strong possibility.

"We're grinding to a halt here," said AMP Capital Investors chief economist Shane Oliver. "The economy has stalled and that's pretty evident when you look at non-farm GDP, which went backwards. We can't say the economy is in recession but it's quite close to it and, for most people, it feels that way."

The stock market had risen about 2 percent before the release of the data, but reversed those gains to finish flat.