The Australian Economy and Inflation Are Both Slowing Down

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Australia’s economic growth and inflation have slowed recently, delivering a double whammy of tepid economic prospects.

The latest Gross Domestic Product (GDP) figures for the second quarter show that Australia’s economy has grown by just 0.5%, well below analyst expectations.

It is a significant drop from the first quarter, which saw a substantial increase in economic activity. This slowdown comes only months after figures showed Australia experienced its weakest year.

The situation looks even direr when it comes to inflation. The latest figures show that consumer inflation has slowed and is well below the Reserve Bank of Australia’s (RBA) target range.

This further indicates that there is more going on than just some statistical noise and could be a sign that we are looking at an even weaker reading for Q1 2020 – potentially even sub – 0.5%.

January inflation also dropped sharply following its surge higher in December, dropping to 7.4%, an entire percentage point below the December figure.

According to the analysts at ING, “Markets have scaled back their expectations for RBA tightening following today’s figures, and the implied peak rate from cash rate futures in October has dropped back to 4.182% from 4.275% the day before.”

The RBA has already cut interest rates twice this year in an attempt to stimulate the economy, but these efforts have not yet made much of an impact on growth or inflation. It remains to be seen how far they may go with further rate cuts in order to try to revive sluggish economic output.

Overall, there is a mixed outlook, with slowing growth and moderating inflation offset by positive indicators elsewhere – a situation likely to be discussed when RBA meets next week and decides whether further action is needed for Australia’s monetary policy going forward.

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