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Australian economic growth slows, heralding more rate cuts

Wednesday 3rd September 2008

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Australia's economic growth slowed more than expected in the second quarter, stoking expectations the central bank will add to this week's interest rate cut.

Gross domestic product rose 0.3% in the second quarter from the previous three months, for an annual pace of 2.7%, according to the Australian Bureau of Statistics. Growth in the first quarter was revised to 0.7%. Economists had expected a 0.4% pace in the second quarter.

The report highlighted what some have dubbed a 'two-speed' economy, with weak consumer spending and stronger-than-predicted business investment, reflecting the impact of tight credit and a boom from commodity exports. The Australian dollar fell after the report to near its lowest in 12 months on speculation the central bank has room to reduce borrowing costs.

"The Australian economy is feeling the impact of the negative global credit crunch and at the same time benefiting from the boost of the commodity boom," economists at Westpac said in a report.

Reserve Bank Governor Glenn Stevens yesterday said he has room to reduce interest rates again after lowering the overnight cash rate a quarter point to 7% yesterday.

The Australian dollar fell to as low as 82.95 US cents after the report was released from 83.10 cents immediately before. It was recently at 83.22 cents.

The economy of New South Wales, Australia's most populous state, shrank 0.1% in the latest quarter while Victoria's expanded 1.8%.

Growth in South Australia was 1%, Queensland grew 1.2% and Western Australia rose 2.4%. Tasmania's GDP grew 3.2%.

By Jonathan Underhill

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