The Australian economy expanded at its slowest pace in more than two years during the June quarter with the Australian Bureau of Statistics showing growth for the economy of just 0.2 per cent, down from 0.9 per cent in the three months to March.
Although the result was certainly better than the zero or negative growth forecast by some economists, it was still below the 0.4 per cent expected by most, according to the ABC.
Indeed, the Australian dollar plunged to a fresh six-year low of US 69.82 cents shortly after the figures were released (although it has since rebounded to US 70.32 cents) with the nation's year-on-year growth now at just 2 per cent, down from 2.3 per cent at the end of the first quarter. When the impact of inflation was excluded, GDP growth for the 2014-15 financial year was just 1.8 per cent which is the weakest growth since 1962.
As expected, the ABS blamed "reduced mining and construction activity, coupled with a decline in exports" as being the major factors behind the slowed growth. This is largely due to crashing commodity prices in light of China's slowing economy, with the Asian nation believed to be growing at a slower pace than the authorities are letting on.
As quoted by the Sydney Morning Herald, Treasurer Joe Hockey said the results were in line with budget expectations and suggested Australia is "relatively well-placed" to weather any volatility in China. By comparison, Canada, which is another resources-rich nation, announced overnight that it had fallen into an official recession.
While Australia has managed to avoid a recession for 24 years now, the latest GDP figures could certainly force the Reserve Bank of Australia to reassess its stance on interest rates in the coming months. Just yesterday, the Board elected to leave interest rates unchanged at 2 per cent, but with inflation levels now at the lower end of their target range (2 to 3 per cent), it may take a different view in October.
Although lower interest rates are not ideal for the economy, such a scenario would likely bode well for dividend investors. In a low interest rate environment, investors tend to flock towards dividend-payers such as Woolworths Limited (ASX: WOW) and Telstra Corporation Ltd (ASX: TLS), which are both trading on solid yields at their current prices.
