Slow growth puts Australian rate rise in doubt

Australia's economic growth eased in the third quarter to its weakest pace since late 2000 as sluggish exports dragged on the economy, raising doubts about the need for tighter monetary policy.

"I think the amount of data in the last few months has really squashed any potential for a near-term rate hike from the Reserve Bank," said Brian Redican, senior economist at Macquarie Bank.

Gross domestic product rose a lower-than-expected 0.3 per cent in the three months through September, slowing from upwardly revised 0.8 per cent growth in April-June.

In the year through the third quarter, growth cooled to 3 per cent from 4 per cent in the year through the second quarter, data from the Australian Bureau of Statistics shows.

"Three per cent is probably just enough to hang on to the current low levels of unemployment that we've got," said Michael Blythe, chief economist at Commonwealth Bank of Australia.

"It's also the sort of growth rate that's not going to be generating much in the way of inflation pressures any time soon,"

Economists in a Reuters poll had forecast GDP to rise a median 0.5 per cent in the quarter through September and 3 per cent in the year through the quarter.

The seasonally adjusted quarterly rise marked the slowest pace of growth since the fourth quarter of 2000, when the economy contracted 0.7 per cent.

"I think the overwhelming reaction would be one of relief because it could have been a lot weaker than that, given the past indicators that we have seen," said Redican.

Economists had trimmed GDP forecasts in recent weeks as other data proved disappointing.

Inflation and wage growth were both benign in the quarter, despite unemployment dropping to a 23-year low.

Construction activity, capital expenditure and retail spending were lower than forecast for the quarter.

But the real shock for markets was a sharp widening in the current account gap to a record deficit as imports outpaced exports.

The Government has blamed the strength of the Australian dollar, which touched a nine-month high just under 79.5USc last week, for making Australia's exports more expensive.

The Australian dollar touched a seven-year high of 80.05USc in February.

Treasurer Peter Costello said the outlook for Australia's economy was positive and export growth should improve.

"While export growth has been held down by capacity constraints and a high exchange rate, the strong world economy and large investments in the resources sector should see growth in Australian exports improve in the period ahead," he said.

But economists said unexpectedly weak October retail sales data and a fall in building approvals in October for the seventh month in a row indicated fourth-quarter economic growth could be equally slow.

The Reserve Bank said it would probably need to tighten policy again this business cycle, although last month it conceded there was no pressure to raise rates. It raised the cash rate twice in the fourth quarter of last year to curb ballooning household debt.

- REUTERS