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National accounts paint puzzling picture -

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ELEANOR HALL: There's evidence today that the Australian economy is weakening at a faster pace than
the Reserve Bank has forecast.

This raises the prospect of deeper interest rate cuts over coming months. But it's bad news for job
security and those Australians who are unemployed.

Gross domestic product or national income grew by just 0.3 of one per cent in the June quarter,
which adds up to an annual rate of 2.7 per cent.

While this is far from recession levels, the pace of the slowdown outside of the mining states will
be of concern to policy makers.

With the detail, I'm joined now by Richard Lindell.

ELEANOR HALL: So Richard what do the numbers tell us?

RICHARD LINDELL: Well expectations for growth Eleanor, were 0.4 per cent, so coming in at 0.3 per
cent is slightly down on forecasts. The annual rate of 2.7 per cent is well down on last year's 4.5
per cent.

And what's more the trend is very weak; so if we took 0.3 per cent out for the next year, were at
1.2 per cent which is very weak and well below what the RBA and the Government for that matter,
would be hoping for.

And it could actually lead to more aggressive rate cuts from the RBA in months ahead.

ELEANOR HALL: And these figures are for the second quarter of the year, could things be even worse
now in reality?

RICHARD LINDELL: Well some economists I've been speaking to over the last week or so actually
expect the third quarter to be weaker than the one we've just had.

And that means we could be facing flat or even negative growth in the third quarter this year.

They're pointing to the sharp decline in household spending which is showing up in retail sales and
in borrowing in consumer confidence, and in fact business confidence for that matter as well.

So changes in sentiment are in fact very hard to turn around, and certainly a quarter of a per cent
cut from the RBA yesterday wouldn't do it.

Also confidence tells us about the future, so there may be worse numbers to come over the coming
months.

ELEANOR HALL: This sounds like an economy in the midst of a pretty severe downturn, were there any
positive signs in the figures?

RICHARD LINDELL: Well actually things aren't as bad, as all that, because if you break down the
components of the figures, and actually things look pretty good still.

We've got business investment growing at six per cent in the June quarter. Investment intentions
over the next year are up 14 per cent, and that's very strong, it is very concentrated on the
mining and mining services area.

But outside of that we've got state governments, they've got $50-billion plus in infrastructure
projects in the pipeline at the moment.

So if you put all that together, what we're about to get is a huge boost to the productive capacity
of the economy, which will also have a dampening effect on inflation, and in fact that's what
economists like to see, they like to see investment and they like to see infrastructure spending.
So all that's pretty good for the economy.

ELEANOR HALL: So what is all this likely to mean then for another rate cut, will we see one next
month?

RICHARD LINDELL: Well today's figures are important for the Reserve Bank certainly. It doesn't want
to send the economy into recession and that's why it cut yesterday.

Even with inflation at 4.5 per cent and still expected no to peak until the end of the year at
about 5 per cent; it can look past inflation though because inflation is in fact telling us about
the past not the future and certainly not the present.

So while the RBA will want to cut and try and engineer a soft landing, it must still maintain
credibility as an inflation fighter. So it would really like to see the October, or sorry the
September quarter inflation figures first. But today's soft GDP numbers certainly increases the
chance of another rate cut in early October.

ELEANOR HALL: Richard Lindell thank you.