Australia's economy has slowed to its most sluggish pace since 2009, when the GFC slammed the brakes on GDP growth, but the weak headline result may not stop the Government announcing a budget surplus a year earlier than planned.

Key points: Australia's economy has posted its equal slowest annual growth since the year 2000

Australia's economy has posted its equal slowest annual growth since the year 2000 The economy grew 0.5pc in the three months to June 30 and 1.4pc over the year

The economy grew 0.5pc in the three months to June 30 and 1.4pc over the year The ABS data show that government consumption and trade drove growth, while inventories and business investment dragged

In seasonally adjusted terms, GDP expanded by 0.5 per cent over the June quarter, or 1.4 per cent for the year — equal to the worst annual growth recorded in the aftermath of the global financial crisis in the September quarter of 2009.

You have to go back to the period after the GST was introduced in the year 2000 to find a worse result.

It is the fourth consecutive sluggish quarterly GDP outcome, dragged down in particular by weak spending growth in the household sector.

Household spending was subdued, growing by just 0.4 per cent over the quarter, while housing investment was a substantial drag on the economy, falling 4.4 per cent.

Net exports added an outsized 0.6 percentage points to GDP over the quarter, while public sector spending was a solid contributor largely thanks to higher spending in disability, health and aged care services.

While the result was in line with market expectations, it fell well short of the Reserve Bank's forecast of 1.8 per cent growth.

'Fundamentals strong'

Treasurer Josh Frydenberg said the figures showed the fundamentals of the Australian economy were strong.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 47 seconds 47 s Josh Frydenberg talks up economy despite slowest growth since GFC

"Today's national accounts show the Australian economy continues to grow in the face of significant headwinds, both international and domestic," he said.

"It's a difficult time for global economies, with Singapore, Sweden, Germany and the United Kingdom all having negative economic growth in their June quarters."

Early budget surplus on the cards

The positive news for the Federal Government was buried in the very strong nominal GDP figures — which measure how much Australia earns for what it produces, rather than just how much it is producing.

Nominal GDP rose by a heady 1.2 per cent across the quarter to be up 5.3 per cent for the year, largely thanks to surging commodity prices lifting Australia's terms of trade.

This flow of income, largely via the miners, underpinned not only company profits but also the Government's tax take.

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The Government has also been benefiting from better Tax Office enforcement and bracket creep to collect more income tax.

As the Commonwealth Bank's economics team pointed out, tax as a percentage of income rose to more than 15 per cent over the quarter, the highest level since 2005, prior to the Howard-Costello tax cuts.

That in turn has improved the federal budget's position markedly over the quarter to the extent it may be back in surplus a year earlier than forecast.

"We suspect that when the Federal Treasurer releases the final 2019 budget outcome later this month, he could unveil the first general government underlying cash surplus since 2007-08 or very close to a balanced budget position," Citi's Josh Williamson noted.

The budget's underlying cash position in May was an almost negligible $115 million deficit. ( Source: Citi Research/ABS )

However, Mr Frydenberg said, while he "knew the number", he was not about to pre-empt the announcement.

"What I can say is what I have said publicly before, is that it is a major improvement on, I think it was a $4.2 billion deficit that was estimated, forecast at budget time," he said.

'Remarkable slowdown'

However, ANZ economist Felicity Emmett said the figures show that weakness in the economy has become more broad-based, with the supports to growth, such as government spending and exports, narrowing.

"The slowdown in the economy has been remarkable — this time last year the economy was growing well above trend at 3.3 per cent, now annual growth has more than halved to 1.4 per cent," Ms Emmett said.

"Overall private sector demand was flat in the quarter, with both housing construction and business investment falling.

"The household sector as well remains under pressure, with weak income growth and the earlier fall in house prices weighing on consumer spending."

Weak wages

Westpac chief economist Bill Evans said the GDP numbers were largely held up by net exports and government spending.

"But the key parts of the economy, such as business investment, dwelling construction and the consumer, are really off," Mr Evans told ABC News Channel.

Mr Evans added that Australia's strong population growth also underpinned the result.

"Today's number indicates, in a per capita sense, the economy went backwards in the last 12 months," he observed.

"But the fundamental problem for the economy is weak wages growth and that's what's weighing on the consumer.

"And, as the consumer becomes more cautious, so business becomes more cautious in terms of the investment plans."

Average compensation per employee rose 0.4 per cent over the quarter, or just 1.4 per cent over the year.

Rate and tax cuts may help

While household disposable income has shown a welcome rebound from late last year, it still has not opened consumers' wallets.

Households throttled back in particular in spending on recreation and culture, hospitality and furnishings and household equipment.

There has also been a dramatic fall in spending on new motor vehicles over the past year.

However, there is a glimmer of hope for struggling retailers in the figures with a slight fall in the household savings rate pointing to home owners having greater confidence their wealth is rising again, which may in turn translate into stronger spending.

The falling savings rate, coupled with the impact of recent interest rate and tax cuts, may fire up consumers' animal spirits, according to Mr Evans.

"The tax cuts will put about $8 billion into the economy," he said.

"These numbers are not really showing the impact of the tax cuts to the June quarter.

"We saw disappointing retail sales numbers for July yesterday, but I think that the real impact will come in August and September. So that's a positive."

However, on the flip side, the household savings rate returned to its downward trajectory, which when coupled with another weak wages outcome, indicates nest eggs are being eaten away just to fund day-to-day expenditure.

"This is the lowest level of saving since 2007 and suggests a reduced buffer for consumption going forward with some risk that a likely deterioration in the labour market prompts some rebuild in precautionary saving," RBC's Su-Lin Ong said.

Ms Ong said the falling savings rate added to the uncertainty over the ability of the interest rate and tax cuts to deliver a meaningful improvement in consumer spending.