Australia's economy experiences a surge in annual growth, reaching a two-year peak in Q3, as markets anticipate a potential rate hike. The growth is attributed to robust spending by businesses, governments, and consumers, despite a significant drop in inventories. The GDP growth rate soared to 5.4% in Q3, surpassing the RBA's projected trend growth of 2%. However, this surge in growth is partially offset by a 0.4% rise in GDP from the previous quarter, falling short of forecasts. The central bank's concern about inflation, which remains elevated, adds complexity to the economic outlook. Harry Murphy Cruise, head of economic research at Oxford Economics Australia, highlights the central bank's challenge, suggesting that rate cuts are unlikely and a rate hike next week to curb inflation is a possibility. The Australian dollar and government bond futures react to the data release, indicating market expectations of a prolonged period of interest rates on hold, with a potential hike by the end of 2026. The slowdown in quarter-on-quarter growth is primarily due to a substantial reduction in inventories, but domestic final demand shows resilience, contributing significantly to quarterly growth. Private investment, government spending, and household consumption all play a role in this growth story. The household savings ratio's increase to 6.4% suggests consumers' continued spending power. This robust domestic demand is a factor in the higher-than-expected inflation rates in recent months, with Australia's inflation reaching 3.8% in October. Analysts at Citi Australia note the potential for a strong Q4, driven by household spending on big-ticket items during sale events, while also warning of hawkish risks. The article concludes with a report on the Thomson Reuters Trust Principles, emphasizing the commitment to ethical standards in reporting.
