Fall in Exports Slows Australian Growth

Australia's economy lost pace in the second quarter of 2014 after a sharp fall in exports saw growth expand by just 0.5 percent following a strong start to the year, data showed Wednesday.

Annual growth was 3.1 percent, figures from the Australian Bureau of Statistics said, compared with a year-on-year expansion of 3.5 percent in the first-quarter. Growth came in at to 1.1 percent in the three months to March.

Analysts had expected a slightly softer reading of 0.4 percent for the second-quarter to take growth for the year-to-date to 3.0 percent.

"Overall, these are pleasing figures but we are not complacent," Treasurer Joe Hockey said.

"The unemployment rate is still too high. We've got to get economic growth above trend in order to start to bring the unemployment rate down."

Reserve Bank of Australia governor Glenn Stevens said in a speech following the data release that the first and second-quarter readings together "suggest a picture of moderate growth".

He said more recent figures showed business conditions improving "a little" and consumer confidence recovering "a fair bit".

"Looking ahead, ideally, the non-mining part of the economy would see a further pick-up to grow a bit above-trend for a while... we may not be quite there yet, but we are I think slowly building a foundation for better performance," Stevens added.

The Australian dollar broadly looked through the data, edging up slightly but staying below 93 U.S. cents.

The slower growth rate was mostly driven by a fall in net exports, which declined by a seasonally adjusted 0.9 percentage points in the three months to June.

Australia's key commodity exports, particularly iron ore, have also been hit by a sharp fall in prices this year.

Inventories supported growth in the quarter, adding 0.9 percentage points, while final consumption contributed 0.3 percentage points.

- Shift to non-mining growth 'tentative' -

The weaker figures had been flagged by the Reserve Bank, which on Tuesday kept interest rates at a record low of 2.5 percent for its 12th straight meeting.

The central bank has sought to maintain an accommodative monetary policy as the country moves away from a mining investment boom that has helped the economy avoid recession for more than two decades.

While the housing sector has grown strongly in the low interest-rate environment, the labor market has been showing mixed signs of recovery.

The unemployment rate spiked to a 12-year high of 6.4 percent in July, while other indicators pointed to a turnaround in companies' hiring intentions.

Economists said the GDP figures showed the transition towards non-resources-led growth was taking place, although the shift remained "tentative".

"The drag from the wind-down in mining investment still has a long way to run and is likely to be much sharper over coming quarters as large-scale LNG projects approach completion," ANZ senior economist Felicity Emmett said.

"Moreover, the non-mining recovery remains tentative with the structural weight of the falling terms of trade and lower public spending likely to weigh on growth for some time."

Hockey was encouraged by the consumption figures, which were not as weak as some had forecast, saying it was a "good thing to see that the household sector held in the last quarter".

"So what we are seeing is momentum building in the non-mining side of the economy and this is a welcome trend. But we have to do more to drive the economy," he said.

A plunge in consumer sentiment after a tough federal budget in May -- which cut back on government welfare and spending -- had sparked fears Australians would tighten their purse strings.

National Australia Bank senior economist David de Garis said the GDP data suggested "people kept spending from their incomes and didn't close their wallets".

"If anything, the rate of spending picked up a little bit," he said.