Australian economy grows sluggish 0.2 percent in second-quarter

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KEY POINTS:

* Q2 real gross domestic product +0.2 percent qtr/qtr,

seasonally adjusted (Reuters poll +0.4 pct)

* Q2 GDP +2.0 pct vs year earlier (poll +2.2 pct)

* Q2 final consumption expenditure +0.9 pct q/q

* Q2 gross fixed capital expenditure +0.4 pct q/q

* Q2 chain price index -0.5 pct q/q

* Q1 GDP was unrevised at +0.9 pct q/q

* For a brief data table click

COMMENTARY:

MICHAEL TURNER, STRATEGIST, RBC CAPITAL MARKETS

"RBA was 2.25, so yes you'd have to say this quarter doesn't look indicative of what's going on in the economy in that public demand was obviously a fairly large contributor and we knew that from the data yesterday. Private demand was up only 0.2 on the quarter and up 0.6 on the year, which is a bit more indicative of what's going on.

"When we look at the way we broke everything down we were probably a little bit disappointed with dwelling investment down a percent on the quarter.

"We wouldn't have thought it influences [the RBA] too much, these figures have come in line with their forecasts. We don't think it's going to be the domestic data that gets them over the line here."

ANNETTE BEACHER, HEAD OF ASIA-PACIFIC RESEARCH, TD SECURITIES

"Everyone will say it's softer than expected but annual growth of 2 percent is exactly what the RBA forecast last month so it's consistent with the RBA's existing thinking.

"Today's number is not necessarily a trigger for the RBA to be spurred into action (on rates). For that we need to wait to see what retail sales and the trade balance gives us.

"Today's data isn't great, it's certainly weighing on the Aussie dollar, which has come back under $0.7000, but is this a trigger for cutting rates per se? No it's not. We have to wait for more up to date data to make that judgement.

"We've see the RBA on hold at 2 percent for the rest of the year ... the next move is more likely to be down than up, but the RBA is determined to sit on 2 percent for as long as it can because it wants to keep its powder dry."

SHANE OLIVER, CHIEF ECONOMIST, AMP

"The good news is that Australia has avoided a negative GDP number but the bad news is that growth remains extremely weak. The 0.2 percent in the quarter relied heavily on government spending. If we didn't have that we'd have dipped over into a recession.

"I think the door is wide open to cut rates despite what they say. I think they will have to cut again. Growth in the economy is running around 2 percent, which is well below any downwardly revised estimate of potential growth in the economy."So if the Reserve Bank is pegging potential growth of 2.5 percent we are still running well below that. It's only a matter of time before the Reserve Bank will have to cut interest rates again. Probably not in October but November is the meeting to watch, I think."

COMMONWEALTH BANK OF AUSTRALIA CHIEF ECONOMIST MICHAEL BLYTHE:

"It does follow a fairly solid increase in Q1 and a lot of it appears to be statistical payback. Nevertheless, smooth out the last few quarters and it looks like we're running at somewhere around a 2.3 percent annual rate so it's a soft outcome whichever way you cut it and the economy remains below trend. As long as we're digesting this downturn in mining and investment, that's going to continue."

TOM KENNEDY, ECONOMIST, JPMORGAN

"It is obviously slightly below consensus, and a little bit underwhelming on our own numbers too.

The RBA had about 0.25 going into this one and so 0.2 is more or less consistent with what they had. If you look at Q1 release too, that was unchanged at 0.9, when you take the six month, you are tracking at pretty close to trend growth rate of the last couple of years, which is isn't too bad considering that net trade was a very large drag on today's numbers.

"It does look that like as well that domestic demand was quite strong given that trade was quite a big headwind to growth.

"I don't think this will be a game-changer in terms of rates. The RBA is more focused on international developments.

"We think we are going to be see growth of about 0.6 to 0.7 per quarter for the second half of the year. This a bit of step-up from the first half of the year, consistent with the idea that as mining falls away, the non-resource economy will pick up."

MARKET REACTION:

The Australian dollar fell as low as $0.6986 from around $0.7030 ahead of the data. Interbank rate futures were unchanged, having already priced in a full 25 basis point cut in official interest rates by early next year.

LINKS:

- The Australian Bureau of Statistics Web site is: www.abs.gov.au

- For all Australian news and data, 3000 Xtra users can click on

BACKGROUND:

-Median forecasts had been for GDP growth around 0.4 pct in Q2. GDP was seen up 2.2 pct on the same quarter last year.

- Record-low interest rates are fuelling a boom in home building that looks to have a long way to run yet. However, sharply lower resource prices have weighed on the terms of trade, company profits and tax receipts.

- Mining investment is in retreat after a decade of breakneck expansion and, so far, other sectors have proved slow to fill the void.