6 Sep 2012

Australia's GDP expands 6% in June quarter

9:17 am on 6 September 2012

Stronger domestic demand has helped boost economic activity in Australia, with gross domestic product expanding 0.6% in the three months to June.

On an annual basis, Australia's economy grew 3.7%.

But AMP Capital Investors head of investment strategy Shane Oliver says recent falls in iron ore prices mean the pace of economic growth is already slowing.

He says the pace of growth over the last year was quite strong but slowed down in the June quarter, partly due to the loss of momentum in the mining sector.

Mr Oliver says there's also been a fall in Australia's terms of trade, which in turn will lead to a loss of income weighing on government revenue and leading to tighter economic conditions.

He says strengthening consumer spending recently was partly on the back of government handouts in May and June but they have now ended and the uncertainty in the job market is likely to keep a cap on consumer spending.

Mr Oliver says the consensus is that Australia's Reserve Bank will cut the official cash rate from 3.5% currently to 3.25% by the end of the year.

He says that may come down to 2.75% next year.

"Now that the mining boom is slowing down we're seeing less of a boost to the economy from export prices, it's appropriate I think for the Reserve Bank to ease up on the brakes so to speak, and therefore we'll probably see quite a few more interest rate cuts going forward".