AUSTRALIA, December 7,2016 (Bloomberg): Australia’s economy contracted the most in almost eight years last quarter as construction and government spending slumped. The currency plunged almost half a U.S. cent.

  • Gross domestic product fell 0.5% from the previous quarter, when it gained a revised 0.6%
  • Result was the worst since the depths of the global financial crisis at the end of 2008 and well below economists’ estimates of a 0.1% drop
  • The economy grew 1.8% from a year earlier, compared with a forecast 2.2% gain

The report spans a period when Australia’s election returned Prime Minister Malcolm Turnbull with a razor-thin parliamentary majority and government spending and resource exports failed to lift growth. The slowdown in annual growth from 3.1 percent in the second quarter is dramatic, particularly when the Treasury estimates the economy’s potential at 2.75 percent and central bank forecasts match or exceed that level.

The Australian dollar bought 74.30 U.S. cents at 12:56 p.m. in Sydney, compared with 74.67 cents before the data.

Wednesday’s data also showed:

  • Private investment in new buildings cut 0.3 percentage point from GDP
  • New engineering and new and used dwellings shaved 0.2 and 0.1 percentage points respectively
  • The household savings ratio fell to 6.3% from a revised 6.7%, which helped support household spending
  • The terms of trade, a gauge of export prices relative to import prices, jumped 4.5%
  • Household spending rose 0.4% and added 0.3 point

“Reduced building activity is reflected in the output of the construction industry which fell 3.6 percent for the quarter and was the largest contributor to the fall in GDP growth on an industry basis,” the statistics bureau said.

Treasurer Scott Morrison cited a decrease in new business investment of 3.2 percent when speaking to reporters after the release, noting “this is the 12th consecutive quarter where new business investment has declined.”

Source: Bloomberg