The Australian economy continued to grow in the first quarter of this year, but its performance was lower than expected by economists. This was due to still moderate household spending, reduced government spending and bad weather that affected the country's mining and export sectors.
According to data released by the Australian Bureau of Statistics, the country's Gross Domestic Product (GDP) grew by 2.5 percent in the first quarter compared to the same period last year. The figure was slightly lower than analysts' expectations of an increase of 2.6 percent.
Compared to the previous quarter, the Australian economy only grew by 0.3 percent, lower than the expected 0.5 percent and much slower than the 0.8 percent growth recorded in the fourth quarter of last year. This shows that the momentum of Australia's economic growth is starting to lose some strength.
Although economic growth did not reach the target, the market still expects the possibility of interest rate hikes in the future. This is because Australia's central bank, the Reserve Bank of Australia (RBA), is still trying to control inflation, which remains a major concern. In May, the RBA raised interest rates by 0.25 percentage points to 4.35 percent.
Meanwhile, Australia's economic outlook has been overshadowed by the ongoing conflict in the Middle East. The tensions have disrupted oil flows through the Strait of Hormuz, one of the world's most important energy trade routes, sending oil and commodity prices soaring on global markets.
Although Australia is a net energy exporter, continued increases in commodity prices could weigh on consumers as the cost of living and business costs could rise. When the price of goods and services rises, consumers tend to be more cautious about spending, which could ultimately slow economic growth.
Bank of America economist Nick Stenner said the full impact of the Middle East conflict may not be visible in the first quarter data because it is still too early. Instead, a more pronounced impact is expected to start to be felt in the second quarter of this year.
According to him, the Australian central bank is likely to continue to focus on the strength of domestic demand and inflation risks before taking into account the impact of geopolitical conflicts. He also expects household spending to be weaker in the second quarter, adding to the challenges for the Australian economy in the near term.
