Australia’s economy grew at a weaker than expected pace in the September quarter despite extra government spending. The slow pace may make early interest rates cuts more likely.

Gross domestic product (GDP) expanded 0.3% in the July-September months, the Australian Bureau of Statistics said on Wednesday. That pace compared with the 0.5% rate expected by economists and the 0.2% growth previously reported by the ABS for the June quarter.

GDP was 0.8% larger than for the September quarter a year earlier. Economists had expected annual growth to come in at 1.1%, or similar to the 1% rate the ABS had stated for the June quarter.

Excluding the swelling population, though, GDP as measured on a per capita basis continued to retreat. It eased 0.3%, sinking for a record seventh straight quarter.

Governments have helped the economy avoid an overall contraction even as the Reserve Bank lifted interest rates at the fastest clip in three decades. Public demand contributed 0.7 percentage points to quarterly GDP growth, the ABS said on Tuesday.

Still, those outlays prevented unemployment rate in 2024 rising much above 4% so far, a figure close to the lowest in half a century. Employment in seasonally adjusted terms rose by 156,600 in the September quarter alone.

More recent data indicate the economy is gathering steam. Retail turnover in October rose 3.4% before inflation, the most in 17 months, while building approvals were the most in 25 months. A services industry survey found sentiment is now at its highest in 30 months, S&P Global reported on Wednesday.

Prior to today’s GDP figures, investors saw little chance the RBA would cut its cash rate from the present 4.35% level at its board meeting next week. They also saw less than a one-in-five chance of 25 basis-point cut at the central bank’s following meeting – 17-18 February – while a reduction by May is all but a certainty.

The dollar dropped against its US counterpart as investors shifted their bets on when the RBA may start cutting rates. It was down to 64.7 US cents from about 64.85 US cents just prior to the data release. Stocks were little changed.

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