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Consumer slump raises red flag on economy

Australia's economy has expanded at a slower than expected rate in the three months to September, with the weakest consumer spending in nearly 10 years dragging on growth.

The economy grew 0.6 per cent in the September quarter, taking the annual rate of growth to 2.8 per cent.

However economists warn the lopsided nature of expansion could be a risk to growth in coming quarters and force the central bank to delay any move on interest rates.

The composition of that latest national accounts was not good, as most components outside of private investment were soft, JP Morgan's chief economist for ANZ Sally Auld, said.

"The most worrying aspect of the data was the strikingly weak household consumption outcome," she said.

Household consumption expenditure increased only 0.1 per cent in the September quarter, making it the lowest quarterly rate of growth since the 2008.

The household savings ratio also ticked up 0.2 per cent to 3.2 per cent, suggesting that households have been reluctant to run down savings to fund consumption.

"It is probably too early to say that this is the beginning of a new trend, but given the unsavoury mix of headwinds facing the consumer at present, alarm bells should be ringing," Ms Auld said.

Consumption accounts for around 55 per cent of Australia's GDP.

The GDP number was lower than market expectations for quarterly growth of 0.7 per cent and 3.0 per cent over the year to September, and is also below the previous quarter's revised 0.9 per cent increase.

The economy was mainly bolstered by private investment, mostly non-residential construction.

About 17 out of 20 industries recorded growth during the quarter, underlining the improvement in business conditions and corporate earnings over the last year.

However, consumer spending remained weak, under pressure from rising household debt and soft wages growth.

Economic growth was also impacted by a 7.5 per cent decline in public investment during the quarter, as government spending returned to normal after the previous quarter's growth was inflated by the one-off South Australian government acquisition of the Royal Adelaide hospital.

International trade did not contribute to third quarter economic growth due to a decline in commodity prices, while housing investment added nothing to growth either.

The data comes a day after the Reserve Bank kept the cash rate on hold for a 16th straight month amid continuing worries about consumer spending.

Those worries could continue for a while, with high levels of underemployment likely to ensure wages growth stay subdued for a while yet, AMP Capital economists Shane Oliver and Diana Mousina said.

"While the price and wage outlook remains subdued and the risks remain significant around the consumer, it is difficult to see a near-term RBA rate hike," they said.

"So we remain of the view that the RBA won't start raising interest rates until late next year at the earliest."

The Australian dollar was down to 75.79 US cents by 1640 AEDT, from 76.13 US cents ahead of the release of the data.