- Su-Lin Ong, a senior economist at RBC Capital Markets
Australia's economy expanded markedly less than expected in the third quarter as commodity prices plunged and mining investment waned, increasing prospects the RBA will cut interest rates next year. Consequently, the Australian Dollar dived to 0.8392, the lowest level in four years, the only positive news for the central bank, which has been repeatedly highlighting the strength of the local currency and its dampening effect on the economy. The resource-rich economy grew 0.3% in the September quarter from the previous three-month period, while GDP growth for the year was 2.7%, against economists' forecasts for a 3.1% pace. Third-quarter GDP output was the weakest quarterly growth since the beginning of 2013, putting pressure on the central bank, which has held interest rates at record lows for more than a year in an attempt to boost a recovery in areas of the economy outside of mining. The mining investment boom helped to shield the economy against a recession for more than two decades.
Being a major commodity exporter, Australia benefited from the China-led boom in prices of the last decade. With many prices now being in a freefall, it is squeezing companies profits, investment, wages and tax receipts. Moreover, as business spending drops, growth has slipped below trend, while the jobless rate has risen to a decade high of more than 6%.
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