Australian growth slips, shoppers lag

SYDNEY - The outperforming Australian economy eased in the second quarter to its slowest growth rate since late 2000, while a surprise fall in retail sales pointed to a softer outlook for economic expansion this year.

Analysts revised down the chances of a further interest-rate rise after the news that second-quarter gross domestic product had risen 0.6 per cent over the previous quarter, a touch less than economists' median expectation of 0.7 per cent.

Second-quarter GDP was 3.8 per cent higher than a year earlier, compared with a forecast of 3.9 per cent and the annual growth exceeding 4 per cent seen in the previous two quarters.

"The Australian economy has fallen below trend growth and that should hammer the nail in the coffin of any further rate hikes in monetary policy this year," said Brian Redican, senior economist at Macquarie Bank.

July retail trade data, more up-to-date than the GDP figures, showed a 0.5 per cent fall from the previous month, ending a nine-month run of rises.

The GDP and retail figures, from the Australian Bureau of Statistics, are adjusted to remove seasonal effects.

Bank-bill futures rallied on the data, implying lower interest rates, as fewer investors expected a monetary tightening this year. The Australia dollar slipped a quarter cent to below US55c.

Treasurer Peter Costello still saw the GDP result as solid, underpinned by investment spending and strong productivity growth, while inflation remained moderate.

"The Australian economy continues to perform strongly, as it did through the Asian financial crisis and the US recession in 2001," he said.

Australia has been one of the world's best-performing economies since a negative patch in late 2000, repeatedly scoring quarterly growth rates of nearly 1 per cent while other economies teetered on the edge of recession.

Strong consumer demand, a housing boom and a competitive currency have fuelled growth, and while exports have faded due to a tepid global economy, rising business investment is expected to take up the slack from a forecast slowdown in housing.

"The economy overall is still travelling at a reasonable pace, a little bit below that 4 per cent pace we probably regard as normal at the moment," said Michael Blythe, chief economist at Commonwealth Bank of Australia.

A quarterly manufacturing survey released yesterday found that capital spending plans remained firm but confidence had slumped amid slowing economic growth.

That data would have been noted at yesterday's monthly board meeting of the Reserve Bank of Australia. Any decision on interest rates will be known this morning.