Australian growth declines

The latest figures show the Australian economy encountering some rough patches. File photo / Mark Mitchell

The pace of economic growth slowed unexpectedly in the last three months of 2011 as the non-mining sectors of the Australian economy remained weak.

However, economists say there is nothing in the data that adds to the case for another cut in official interest rates.

Australian gross domestic product (GDP) rose by a seasonally adjusted 0.4 per cent in the December quarter for an annual pace of 2.3 per cent, the Australian Bureau of Statistics said yesterday.

The quarterly figure was well below the 0.7 per cent that the market expected. It followed a 0.8 per cent rise in the September quarter.

JPMorgan economist Stephen Walters said the slower pace of GDP growth was due mostly to an unexpected fall in farm inventories - mainly unsold grain stocks.

"The good news, then, is that the drag in coming quarters also will be smaller," Walters said.

"There was no evidence of the hollowing out of the rest of the economy while the mining industry booms.

"Services output, for example, was robust last quarter, and growth in mining output lagged behind the expansion in manufacturing."

Walters said that there was nothing in December quarter GDP figures that would add to the case for more interest rate cuts by the Reserve Bank of Australia.

CMC Markets chief market economist Michael McCarthy said he was not surprised by the lower reading, given other official data recently.

"This number is probably the low end of expectations," he said.

"But we would bear in mind from a market point of view that it was a backward-looking number - we know there were a lot of issues in that quarter, and it's not out of line with that."

The Reserve Bank cut the cash rate by a quarter of a percentage point at each of two consecutive board meetings in November and December, from 4.75 per cent to 4.25 per cent, amid fears the eurozone debt crisis would weigh on local economic activity.

McCarthy said he did not expect the bank to change its interest rate outlook because of the December quarter GDP data.

"Let's remember there was still positive growth in the sector."

AMP chief economist Shane Oliver said the GDP data showed the effects of the mining boom were not filtering through to the rest of the Australian economy.

"The so-called trickle-down effect is nothing more than a few drips."

Oliver said it was likely the economy would continue to record weak growth in 2012.

- AAP