New figures from the Australian Bureau of Statistics show Australia has recorded staggeringly weak economic growth.
Gross Domestic Product (GDP) grew just 0.5 per cent for the June quarter, equating to a 1.4 per cent growth for the financial year.
As comparison, the economy grew 1.7 per cent during the 2009 Global Financial Crisis.
The ABS stated government spending was the main contributor to growth in domestic final demand, “reflecting ongoing delivery of services in disability, health and aged care”.
The household sector remained relatively subdued, with a 0.4 per cent growth in household expenditure, the ABS said.
On Tuesday, Australia recorded its first account surplus in 44 years off the back of high iron ore prices, boosting our exports receipts to record levels.
"Export volumes for the key bulk commodities of liquid natural gas, coal and iron ore were up, while volumes fell across several import categories resulting in an increased June quarter trade surplus,” the ABS said.
The jump in exports contributed around 0.6 percentage points to GDP.
Should the RBA cut interest rates?
On Tuesday the Reserve Bank of Australia decided to hold rates at 1 per cent, citing risks to the economy were subdued.
But, governor Philip Lowe recognised the economy was in bad shape.
“Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices and turnover,” he said.
“The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income and a stabilisation of the housing market are expected to support spending.”
But not everyone thought this was a good idea.
Economist Stephen Koukoulas slammed the government for having the power to help by slashing interest rates again, and not doing so.
“It’s as absurd as a firefighter unwilling to put out a fire because it might waste water,” Koukoulas said.
“Yet this is the situation that is before the Treasurer, Josh Frydenberg and the Governor of the Reserve Bank of Australia, Philip Lowe.”
Koukoulas said at 1 per cent, Australian interest rates still remained well above the rates set by most credible banks during their episodes of disinflationary slow-downs, and that is still a problem for our economy.
“To boost growth, Dr Lowe could (should) cut interest rates to near zero but he has a preference to have higher unemployment and lower living standards than needed as he maintains his crusade against house prices and household debt.”
But, without policy action, Koukoulas said the economy is likely to remain a ‘chronic under-performer’.
Scott Morrison isn’t worried
While Koukoulas thinks the economy is in dire straits and the government is failing to aid it, Prime Minister Scott Morrison isn’t concerned.
Morrison told 3AW Radio Wednesday morning that, despite weak GDP growth, he isn’t expecting a recession and on the contrary, compared to other countries, Australia is doing relatively well.
"I can't see us going into that territory," he said.
"What we will see is that in a tough climate we are actually battling away quite well."
Morrison said he was concerned by falling retail sales this quarter, but said cutting taxes, building infrastructure and investing in skills would increase spending.
The ATO has issued around 5.5 million 2019 income tax return refunds so far, with a total value of over $14.2 billion, which could see spending increase.
Stephen Koukoulas will be speaking on economic headwinds at Yahoo Finance's All Markets Summit on the 26th of September. Join us for this groundbreaking event.