* Current account gap widens to A$13.7 bln in Q2, much as
* Net exports take 0.9 ppt off Q2 GDP, govt spending muted
* Economy thought to have grown modest 0.4 pct in Q2
* Strength in home building, prices to support growth in H2
By Wayne Cole
SYDNEY, Sept 2 Australia's current account
deficit widened sharply in the three months to June as export
growth stalled and imports rebounded, a swing that was set to be
the single biggest drag on economic growth in the quarter.
Tuesday's data from the Australian Bureau of Statistics also
showed government spending stayed subdued in the second quarter
amid much talk of fiscal belt-tightening, pointing to a sub-par
performance for the economy as a whole.
But there was better news on the current quarter, with
approvals to build new homes surprisingly strong in July as
record-low mortgage rates and rising house prices pumped up
The latest rush of data comes just before the Reserve Bank
of Australia (RBA) releases the outcome of its September policy
meeting at 0430 GMT.
The central bank is widely expected to keep its benchmark
rate at 2.5 percent, extending the steady run to over a year,
and to signal more of the same ahead as the economy muddles
The report on gross domestic product (GDP) is due on
Wednesday and signs are it will show a marked slowdown from the
first quarter's surprisingly brisk 1.1 percent growth from the
previous three months.
Median forecasts in a Reuters poll favour a rise of 0.4
percent for the second quarter, the smallest in over a year.
"We're at 0.2 percent for GDP and that's mainly due to
weakness in domestic demand - it feel very much like a
low-growth economy right now," said David de Garis, a senior
economist at National Australia Bank.
"But that won't be any surprise to the RBA. It's why they
should stick with the stable outlook for policy."
Partly to blame was weakness in consumer spending over April
and May, when sentiment was spooked by a government campaign to
justify a budget of spending cuts and higher charges.
Australia's trade performance also turned into a drag after
a very strong performance in the first quarter. The current
account deficit yawned out to A$13.7 billion ($12.7 billion),
from A$7.8 billion, the widest since late 2012.
With export volumes dipping 0.6 percent and imports
rebounding by 3.7 percent, trade shaved 0.9 percentage point
from GDP in the quarter.
Fortunately that was balanced by businesses rebuilding
inventories, which looked to have added a whole percentage point
Also helping was a revival in home building as low rates and
double-digit gains in house prices drive new supply after
several fallow years for the sector.
That expansion looked to have a lot further to run, with
approvals to build new homes climbing 2.5 percent in July,
handily topping market forecasts of a 1.5 percent increase.
That left approvals 9.4 percent higher than in July last
year, while growth in houses was even stronger at 14 percent.
Such activity will be very much needed as mining spending is
set to fall steeply over the next few years as a decade-long
investment boom comes to maturity.
How this handover from mining proceeds is the single biggest
uncertainty for policy makers, and a major reason rates are
likely to stay low for many months to come.
"The fall-off in investment spending by resources companies
has a long way to go yet and will probably accelerate in the
coming year," RBA Governor Glenn Stevens said last month.
"This impending further fall is captivating most of the
(Reporting by Wayne Cole; Editing by Alan Raybould)