Australia's economy expanded at the fastest annual pace in over a year last quarter, thanks to a long-awaited jump in business investment, but worrying weakness in household spending cast a cloud over the outlook for growth.
Yesterday's data from the Australian Bureau of Statistics showed that gross domestic product (GDP) grew by 0.6 per cent in the third quarter, slowing from the previous quarter when it rose 0.9 per cent.
The result just missed market forecasts of growth of 0.7 per cent for the quarter, and nudged the local dollar down a quarter of a cent to US$0.7580.
The annual pace accelerated to 2.8 per cent, from 1.9 per cent, and handily outpaced the United States at 2.3 per cent.
The mixed outcome would be no surprise to the Reserve Bank of Australia, which only on Tuesday kept interest rates steady at 1.5 per cent in anticipation of faster growth and a gradual revival in inflation.
Investors suspect policy will stay on hold for a long time to come and interbank futures are not fully priced for a hike until early 2019.
"If you can't get a stronger consumer, it's pretty difficult to get momentum going in GDP," said Sydney-based chief economist Su-Lin Ong at RBC Capital.
Household consumption accounts for 55 per cent of Australia's A$1.7 trillion (S$1.74 trillion) economy.
"For us, the key in the core of the economy is domestic demand, and it's hard to see how momentum picks up there when you've got so many challenges for both consumers and households," Ms Ong added.
Australian consumers are saddled with a mountain of debt that is rising at a much faster pace than incomes. Wage growth is crawling at the slowest rate ever, while the unemployment rate is still up around 5.5 per cent.
Indeed, household consumption rose just 0.1 per cent in the quarter, the smallest increase since late 2012.
Some of that spending had to be funded by saving less, with the savings ratio down at a lowly 3.2 per cent compared with around 7 per cent just three years ago.
The paucity of demand meant inflation was also a no-show, with a key measure of domestic prices flat in the quarter.
Analysts noted that the economy will have to expand by a strong 0.9 per cent this quarter, if annual growth is not to slow again.
Still, other parts of the economy are chugging along, with non-mining investment appearing to be turning a corner.
The main driver of growth in the third quarter was engineering construction, with a small assist from a build-up in inventories.
Private investment rose 4.5 per cent last quarter, the largest gain in four years.