Australia's economy slows as China stumbles

Australia's economy expanded at its slowest quarterly pace for more than two years as mining and construction activity fell and exports declined, data showed Wednesday, hit by weakening growth in its biggest trading partner China.

Resources-driven economies such as Australia, Brazil and Canada have been hurt by softening Chinese demand for commodities, which has triggered a dive in prices for metals and oil, sending their currencies tumbling and hitting revenue.

Canada, the world's fifth-largest oil producer, said Monday it had fallen into recession for the second time in seven years, while Brazil's GDP contracted for the first two quarters of this year.

Economic growth in Australia -- of which iron ore and coal are its largest exports -- expanded at a slower-than-expected 0.2 percent in April to June, taking the annual rate of expansion to 2.0 percent, the Australian Bureau of Statistics said.

The latest figures -- which followed strong 0.9 percent growth in the first quarter -- were softer than analysts' expectations of June quarter growth of 0.4 percent for year-on-year growth of 2.2 percent.

The Australian dollar, a risk proxy for China, was already reeling from fears about the health of the world's second-largest economy and briefly slipped below 70 US cents to 69.95 US cents before recovering.
Australian Treasurer Joe Hockey sought to allay fears about the economic outlook and said while his country had been hit by its biggest fall in the terms of trade for more than half a century, the economy had avoided a recession for 24 years.

"At a time when other commodity-based economies like Canada and Brazil are in recession, the Australian economy is continuing to grow at a rate that meets and sometimes beats our most recent budget forecast," he told reporters.

"The diversity and flexibility of the modern Australian economy is continuing to get us through the recent massive falls in commodity prices."

- Recession risk? -

The last time the economy expanded at this pace was in the March quarter 2013, and before that, the weakest reading was a 0.4 percent contraction in the three months to March 2011.

Mining production "fell significantly" by 3.0 percent for the quarter, although growth through the year was 2.1 percent, the statistics bureau said, adding that the weaker data came as exports also fell.

Net exports detracted from GDP growth by 0.6 percentage points for the three months.

In positive news, household spending rose 0.5 percent for the period while government expenditure jumped 2.2 percent.

National Australia Bank senior economist David de Garis told AFP there was "some economic progress, but in a still-difficult environment", adding that the 2.0 percent GDP reading was forecast by the Reserve Bank of Australia (RBA).

Australia has struggled to transition away from mining-driven growth as an unprecedented boom in resources investment ends, with non-mining industries failing to fill the gap.

The central bank Tuesday kept interest rates at a record-low 2.0 percent, while the jobless rate has stayed around a decade-high of 6.0 percent in recent few months.

Capital Economics' senior Asia economist Daniel Martin said in a note that the lower second-quarter reading could put rate cuts back on the table, adding: "The risks may now be to the downside, with the chances of a recession looking larger than at any time in the last 24 years."

But despite other commodity economies such as Canada slipping into recession, Australia's more than two-decade-long period of growth was likely to remain intact unless there was an unexpected shock, RBC Capital Markets' fixed income strategist Michael Turner told AFP.

"We think you'd need an exogenous shock to get us into some kind of contraction, be that from China or elsewhere. Growth is not great, but it's not terrible in the same breath.

"There are parts of the economy that are going OK," he added, pointing to residential construction, household consumption and net exports.

TD Securities' chief Asia-Pacific strategist Annette Beacher said it was not yet "our turn for the 'r' (recession) word" and the new data would not trigger a change in the RBA's outlook.