Stock rundown slows growth in Australia

Australia's economy grew at its slowest pace in three years last quarter as consumption cooled and firms ran down inventories, perhaps lessening the need for a further rise in interest rates.

Gross domestic product rose just 0.3 per cent in the second quarter, well below market forecasts for a 0.7 per cent gain, while first-quarter growth was revised down to 0.7 per cent.

The value of goods and services produced amounted to an inflation-adjusted A$231.26 billion ($178 billion), a 1.9 per cent rise on the same quarter last year.

That was down from 2.9 per cent in the first quarter and the slowest pace of annual growth since the third quarter of 2003.

"There's no getting around it, these are pretty weak numbers," said Macquarie Bank senior economist Brian Redican.

"This won't be enough to change the Reserve Bank's tightening bias - the labour market is still too tight for that. But it does suggest there's no urgent pressure for another rate hike this year," he added.

Earlier yesterday, the Reserve Bank of Australia (RBA) left interest rates unchanged at 6.0 per cent, as expected. The central bank has raised rates twice this year as consumer price inflation broke above its target range of 2 to 3 per cent.

Investors reacted by knocking a quarter of a US cent off the Australian dollar and trimming the chances of another rate rise this year.

Australian Treasurer Peter Costello put a brave face on the numbers, saying underlying growth was stronger than it seemed and output was likely to bounce back as stockpiles were rebuilt.

A run-down in inventories lopped 0.8 percentage points from growth in the second quarter.

Much of the monthly economic data since June has been strong, with growth in retail sales, borrowing, housing and employment.

Analysts noted that in the second quarter, domestic demand grew a solid 1.2 per cent.

Business investment continued to add to growth, though it has calmed from the furious pace of recent years.

Policy makers are counting on investment to boost output at mines and manufacturers, so easing bottlenecks in an economy stretched after 15 years of expansion.

- REUTERS