Australian economy splutters, services sector hit hard, market up: Economy roundup

The economy has hit the brakes. New Bureau of Statistics data shows annual GDP grew by just 0.1% in the three months to September, down from 0.4% in the previous quarter – the slowest pace in eight years.

The economy has hit the brakes. New Bureau of Statistics data shows annual GDP grew by just 0.1% in the three months to September, down from 0.4% in the previous quarter – the slowest pace in eight years.

Imports slipped 0.4% due to the falling dollar, while new buildings also fell 0.1%. The figures also show that in trend terms, non-farm GDP fell by 0.3%.

The figures may lead the Reserve Bank to cut the official interest rate further. Yesterday the bank cut rates by 100 basis points to 4.25%, the lowest point since May 2002.

The bad news extends to the services sector, with the Australian Industry Group’s Performance of Services Index falling for an eighth consecutive month in November.

The index has fallen 4.3 points to 37.8, well below the 50-point level separating expansion from contraction.

Australian Industry Group chief executive Heather Ridout says activity has fallen due to the continued falls in consumer and business confidence.

“The weak Australia PSI reading for November on top of other recent data vindicates the RBA’s decision yesterday to reduce official interest rates while the Prime Minister’s stimulus package clearly can’t come soon enough for the sector. More of both might be required depending on how conditions unfold.

“The index readings for services sales, new orders and employment all fell to record lows in November, with all sectors and states reporting a decline in activity.

“Indications are that the services sector is in for a tough Christmas period ahead, particularly the retail sector, which saw annual turnover growth fall from 6.2% to 1% since the end of 2007.”

Meanwhile, the Australian sharemarket opened 2% higher after Wall Street gains, due to news the US Federal Reserve will extend emergency measures to stabilising banks during the financial crisis. The Dow Jones Industrial Average closed up 270 points or 3.31% to 8419.

But the benchmark S&P/ASX200 index was down 13.3 points or 0.38% to 3514.9 at 12.20 AEDT after the poor GDP data. The dollar also lost ground, slipping back to US64c.

BHP shares jumped 3.5% to $27.97, while Qantas shares also rose 7.1% to $2.41 on the news of a potential merger with British Airways.

Rio Tinto shares dropped 6.7% to $36.39, despite news the group has experienced good mining results from nickel deposits in the US.