Surprising GDP growth holds ‘double-edged sword’ over Aussies fearing another rate hike

The Australian economy grew by 0.4 per cent in the June quarter, but experts warn the “double-edged sword” in the stronger-than-expected results makes another rate hike this year all the more likely.

The Australian Bureau of Statistics on Wednesday found gross domestic product (GDP) rose by 0.4 per cent in the last three months and 2.1 per cent in the year to June as cautious households spent less on fuel and travel due to the war in the Middle East.

That was slightly lower than the 2.5 per cent in the 12 months to March and 2.6 per cent in the 12 months to December.

The Commonwealth Bank on Tuesday warned Australia’s speed limit, or the rate at which GDP can grow without pushing up inflation, is about 2 per cent.

With annual GDP above that benchmark, experts fear another Reserve Bank of Australia rate rise remains likely.

“Today’s GDP result turns Australia’s economic resilience into a double-edged sword,” Convera head of market insights Steven Dooley said.

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“Household consumption and mining exports helped keep growth stronger than expected, but for households and businesses waiting for rate relief, that strength could keep another hike firmly in play.”

BNY senior market strategist Wee Khoon Chong agreed that the threat of another rate rise has not yet passed, although he is expecting the RBA to remain on hold on September 29.

“The data point to resilient underlying activity, while still-sticky inflation keeps the prospect of further policy tightening alive, even if the RBA is likely to stay on hold in September pending clearer labor market signals,” he said.

Treasurer Jim Chalmers, however, hailed the results as stronger than every other major advanced economy and an indicator of Australia’s resilience to global challenges.

“The Australian economy has obvious strengths, but we can still see in these numbers our three primary challenges: inflation, productivity, and global volatility,” he said.

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“And we know that each of these puts pressure on people, but the growth story in these national accounts, compared with our peers, the upticks in housing investment and incomes, are very encouraging.

“We know that people will try and find the worst elements of these national accounts as part of an effort to talk our economy and our country down, but these are the national accounts of an economy which is robust and resilient in uncertain times.”

The slight uptick in quarterly economic growth was partly attributed to a 10.3 per cent increase in electric vehicle sales as motorists try to create long-term savings.

“The rise in electric vehicle purchases may have reflected households taking a longer-term approach to cost of living pressures, with some choosing EVs to help reduce ongoing expenses,” ABS head of national accounts Grace Kim said.

Elsewhere in the economy, private business investment fell by 0.5 per cent, with investment in machinery and equipment for data centres declining following a March quarter peak.

Imports of goods rose 2.4 per cent due to cars and planes, while the imports of services fell 4.9 per cent due to the conflict abroad.

“The number of Australians travelling overseas for the northern hemisphere summer fell for the first time since the COVID-19 pandemic, significantly reducing international travel expenditure,” Kim said.

Exports rose 0.8 per cent due to higher production of coal, compared to a small yield in the previous quarter due to weather disruptions.