As expected growth in the Australian economy slowed in the second quarter: as expected it slowed to a rate of 0.3% from the original 0.6% in the March quarter, while the annual rate dipped to 2.7% from the annual rate 3.6% in the March quarter.

But it’s a slowdown, not a recession, and it has been sufficient enough to give the Reserve Bank room to continue cutting rates: so long as inflation doesn’t perk up and falls to less than 4% by the first quarter of 2009.

Growth hit a two year low in the June quarter as the economy slowed far more sharply than the Reserve Bank had forecast it would.

Some economists had the economy slowing to an quarterly growth rate of around 0.4%, others had it down as 0.3%, but the main fact is the economy is slowing, as the RBA expected. Spending slowed, with growth in household consumption minus 0.1%. But that wasn’t as much as forecast by some economists. But the annual growth rate of 2.7% is awfully close to the 2.75% growth rate the RBA last month forecast we’d be enjoying in the June quarter of next year!

From that we can see why the RBA switched last month to a rate cutting tack, and we can probably blame the surge in oil and petrol prices rather than the four interest rate rises, and the bit on top from the banks of around 0.55%.

It’s clear that the dramatic contraction in sales growth reported in some sectors of housing and retailing in the quarter coincided with the dramatic surge in petrol prices in particular.

The rise in oil and petrol prices was not factored into RBA forecasts, but the bank started making references to it from June and July onwards, according to minutes of monthly board meetings. And we can thank the mining industry, along with those companies servicing it, for keeping growth positive with the huge spending on investment and in the surge in export income (from those higher iron ore and coal prices in the quarter).

Given the continued housing slump, and that CBD and city industrial property values slipped in the quarter (judging by the number of valuation cuts recorded by property companies and trusts like Mirvac etc) this seems to be a bit out of whack.

The Australian Bureau of Statistics said:

In seasonally adjusted terms, GDP increased by 0.3% in the June quarter. Non-farm GDP increased by 0.5%. The Terms of trade rose 13.1% and Real gross domestic income rose 3.3%.

In seasonally adjusted terms, the main contributors to the increase in expenditure on GDP were Machinery and equipment investment (0.9 percentage points) and Exports (0.5 percentage points). The largest negative contributions came from Imports (-0.6 percentage points), Inventories (-0.5 percentage points), Engineering construction investment (-0.2 percentage points) and Defence investment (-0.2 percentage points).

In seasonally adjusted terms, Property and business services contributed 0.3 percentage points to GDP growth, while Transport and storage contributed 0.2 percentage points. Agriculture, forestry and fishing detracted 0.2 percentage points from GDP growth.

And while politicians and others will try and make capital out of this for various reasons, it’s worth making this comparison: Australia’s 2.7% annual growth rate in the second quarter compares with 2.2% in the U.S., 1.4% in the U.K. and 1.7% in Germany. Japan contracted and later this month we will find that New Zealand contracted for a second quarter in a row.

The Australian dollar fell back under 83 US cents after the release of the figures because the market knows there’s another rate cut this year in the pipeline.