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Australia's economy expands at slowest pace in 8 years

Wednesday 3rd December 2008

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Australia's economy grew at the slowest quarterly pace in eight years as household spending weakened.

Gross domestic product expanded 0.1% in the third quarter for an annual increase of 1.9%, according to the Australian Bureau of Statistics. That lagged behind the 0.2% median estimate in a Reuters survey.

"A crisis of confidence on the consumer front was a key factor in Q3," economists at Westpac said. "Australians were rattled as they saw wealth decline, with house prices falling gradually and the share market dropping sharply."

Slowing growth raises the prospect that the Australian economy will slide into recession as corporate earnings flag and stocks tumble. Reserve Bank Governor Glenn Stevens has cut the benchmark interest rate by 300 basis points to since early September. The GDP report may add to pressure on the bank for further cuts, economists said.

"It was a quarter in which monetary policy was very tight, the credit crisis was biting and the global economy was slowing significantly," Westpac said.

Household savings rose by A$4.9 billion in the latest quarter, helped by the impact of tax cuts, which consumers opted not to spend.

Stevens cut the benchmark rate to 4.25% yesterday, citing a "significant moderation in demand and activity" in developed economies.

By Jonathan Underhill

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