A perfect storm has pushed Australia's economy is halfway to recession, but economists are optimistic about a year-end rebound.
Gross national product declined by 0.5 per cent the September quarter, cutting growth to 1.8 per cent in the 12 months to September.
The result was well below average forecasts of a fall of 0.2 per cent in the quarter and growth of 2.1 per cent for the year in a survey of 14 economists.
The quarterly contraction was broad-based with weak private investment in new buildings, engineering and new and used dwellings weighing on growth.
The ABS said soft public investment and falling export volumes had also pushed the economy into decline.
TD Securities chief Asia-Pacific macro strategist Annette Beacher, whose GDP forecast was spot on, said the Reserve Bank will now be trying to work out whether Australia is halfway to a recession, or two quarters of economic contraction.
“I think they’ll be spending the afternoon figuring out to what extent are these one-offs, and can we get rebound in Q4,” she said.
“Will private consumption rebound, will the dwelling sector rebound, will the public sector rebound? They’ll be spending more time looking at that.”
However, Ms Beacher said the dips across GDP contributors were more likely an unfortunate coincidence that makes a Christmas recession unlikely.
CommSec chief economist Craig James said the slump coincided with huge uncertainty about the UK’s Brexit vote, the Australian federal election and the US presidential election.
He predicted the contraction to turn out to be a blip on the radar, albeit very important.
Ms James said many Australians have become complacent believing that the economy is somehow teflon-coated.
He said the quarterly decline highlighted the fact that, if people don’t spend, invest and employ, the economy won’t grow.
“It does shake business, consumers and politicians out of their lethargy; there’s a case that we do need to be focused on growing this economy,” Mr James said.