Australian economy in surprising slowdown as high rates damp spending

Australia's economy unexpectedly slowed sharply in the three months through September as consumers hunkered down in the face of rising borrowing costs while trade detracted from growth.

Gross domestic product (GDP) advanced 0.2 per cent from the prior quarter, slower than economists' estimate of a 0.5 per cent gain, Australian Bureau of Statistics (ABS) data showed on Dec 6.

From a year earlier, the economy grew 2.1 per cent from a downwardly revised 2 per cent.

"Government spending and capital investment were the main drivers of GDP growth this quarter," ABS head of National Accounts Katherine Keenan said in a statement.

"Household spending was flat in the September quarter." With annual growth slowing from a decade average of 2.4 per cent, the data is likely to ease concerns about demand-driven inflation pressures.

That suggests the Reserve Bank of Australia (RBA) can remain in a holding pattern for a little while in order to assess the economy.