Tourists sit on the bollards of the Sydney Opera House.
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Australia’s economy lost momentum in the first quarter, dampened by weak household spending, weak government spending and disruptions to mining and exports from severe weather.
Data released by the Australian Bureau of Statistics on Wednesday showed the country’s GDP expanded by 2.5% year-on-year in the first three months of this year, but this was lower than economists had expected for 2.6% growth and slowed from 2.6% growth in the previous quarter.
Australia’s GDP rose 0.3% quarter-on-quarter, while a Reuters poll expected a 0.5% increase, slowing from the 0.8% increase seen in the previous quarter.
The statistics agency said this slow growth was partly due to strong investment in data center machinery and equipment.
The Reserve Bank of Australia became the first central bank in the developed world to raise interest rates this year after the Australian economy posted its highest quarterly growth rate in nearly three years in the final quarter of last year.
The central bank raised interest rates for the third time this year in May, raising its cash rate target by 25 basis points to 4.35%, as the economy’s resilience last year revived inflationary pressures.
Australia’s 10-year government bond yield rose to 4.898% following the data release, after rising about 24 basis points since the Iran war began on February 28, according to LSEG data. The S&P/ASX 200 rose 0.5%, but the Australian dollar was little changed against the dollar at $0.7176.
The country’s growth prospects have dimmed as the ongoing Middle East conflict has virtually halted the flow of oil through the Strait of Hormuz and increased energy and commodity prices globally. Although Australia is a net energy exporter, sustained increases in commodity prices could ultimately weigh on consumer demand.
Nick Stenner, Bank of America’s Australia and New Zealand economist, said on Monday that the first quarter figures were “too early to capture the significant spillover effects from the conflict” and that the impact of negative growth was more likely to be felt in the second quarter.
Mr Stenner, who expects household consumption to weaken in the second quarter, said the Reserve Bank of Australia was likely to focus on the strength of private demand before factoring in the conflict, along with inflation risks from lower productivity and higher unit labor costs.
The RBA expects the country’s economic growth rate to slow to 1.3% by the end of this year, according to a statement in May.
