The Australian economy expanded by a weaker than expected 0.2% (s.a.) in the third quarter of 2010. The market had been expecting an increase of around 0.4%. The lower than expected result and revisions to past data has put the annaul rate of growth at 2.7%, lower than the expected 3.4%. By developed economy standards, this is still a good result.
Weaker exports (-2.4% q/q) and a decline in inventories were the biggest contributors to the weaker than expected result. The weak exports number came after some pretty strong esults in previous quarters - we are not seeing this is as a new trend but rather a temporary pull back after a pretty strong run of numbers. Construction was down 0.9% in the quarter.
Consumption was still soft at 0.6% q/q, but that shoudn't come as a surprise. As with most of the developed world, Australian households are repairing balance sheets and addressing high debt levels. On the other hand (don't ya just love it when economists use both hands), strong employment growth and booming tems of trade will help underpin spending and business investment.
With China looking increasingly likely to engineer a soft landing to its current attempts to rein in inflation and housing market excesses, the outlook remains good for Australia. It is a two-speed econony at the moment, but the fundamenatls for households to start making a meaningful contribution to growth remain stronger than most other developed economies.