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Australian GDP Growth Slows to 2.3% in Q1, Marking Lowest Rate in Over a Year Amid Rising Interest Rates

The Australian Bureau of Statistics (ABS) has released data showing that the country’s gross domestic product (GDP) growth in the first quarter of 2023 stood at 2.3% year-on-year. This figure falls short of analysts’ expectations of 2.4% growth and represents a deceleration compared to the 2.7% growth recorded in the fourth quarter of 2022.

On a quarterly basis, Australia’s Q1 GDP expanded by 0.2%, which was below the forecasted 0.3%.

The director of the ABS highlighted that while the first quarter saw the Australian economy achieve its sixth consecutive quarter of growth, it experienced the slowest pace since the third quarter of 2021.

One of the key factors contributing to the sluggish growth is the impact of rising interest rates and elevated inflation levels, which have adversely affected consumer spending and overall economic activity.

Contrary to analysts’ expectations of the Reserve Bank of Australia (RBA) maintaining its policy rate at 3.85%, the central bank decided to raise it by 0.25% to 4.10%. This marks the highest level in 11 years.

RBA Governor Philip Lowe acknowledged that although Australia’s inflation may have reached its peak, there are still indications that the country’s economy continues to face inflationary pressures.

The Consumer Price Index (CPI) for April revealed a higher-than-expected increase, primarily driven by surging fuel and housing prices. This rapid acceleration in inflation is anticipated to continue exerting pressure on the RBA.

According to the ABS, Australia’s CPI rose by 6.8% on a year-on-year basis in April, surpassing the 6.3% increase in March and exceeding the consensus estimate of 6.4%. On a month-on-month basis, Australia’s CPI for April registered a 0.8% rise.

The lower-than-anticipated GDP growth in the first quarter, combined with the impact of rising interest rates and persistent inflation, pose challenges for Australia’s economy. As the RBA grapples with balancing these factors, economists and market participants will closely monitor future developments and policy decisions to gauge the country’s economic trajectory.

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