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What the weaker than expected GDP growth means for your ASX investments

A sharp slowdown in Australian economic growth has coincided with the brutal market sell-off that has infected global equity markets, including the ASX.

Our gross domestic product (GDP) growth slowed to 0.3% in the three months to September, which is half of what economists were expecting and marks the weakest rate in two years.

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index trended lower on the release of the data from the Australian Bureau of Statistics (ABS) and is down 1.4% during lunch time trade with sectors most exposed to the domestic economy taking the brunt of the sell-off.

Casualties of Weaker Domestic Growth

These include the major banks, such as the Commonwealth Bank of Australia (ASX: CBA) share price, Westpac Banking Corp (ASX: WBC) share price, Australia and New Zealand Banking Group (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price, which are down by more than 2% each.

Retail stocks are also taking a hit with the JB Hi-Fi Limited (ASX: JBH), Myer Holdings Ltd (ASX: MYR) share price and Premier Investments Limited (ASX: PMV) share price trading at the bottom end of the day’s trading range.

The Australian dollar was another casualty as it dropped around half a cent to US73.1 cents. That’s a pretty big move for our currency.

Devil’s in the Details

Discretionary spending slowed during the quarter while non-discretionary household spending on food and housing increased 0.3%.

Weak wage growth is holding back the economy and consumers are funding the increase spend from their savings with the national savings rate falling to 2.4% in the September quarter – the lowest since December 2007, according to the ABS.

A big drop in mining investments has also detracted from the results as non-mining companies have failed to step up investment spend to offset the slowdown.

Government spending is helping to offset the weakness with public spending increasing 0.5%, particularly in healthcare and infrastructure projects.

Foolish Takeaway

The weak reading surprised me, and I suspect we will see economists downgrade their GDP projections for Australia.

While we might be tempted to think one-off factors are weighing on local growth, the things dragging us lower doesn’t look so temporary, particularly if we do not see wage growth pick up like what the Reserve Bank of Australia (RBA) is anticipating.

On the other hand, it’s too early to throw in the towel as there are a few bright spots on the horizon that should support the next few sets GDP readouts – such as decent retail sales over this Christmas season.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, Premier Investments Limited, and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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