Australia's economy slowed more than expected last quarter as consumers reacted to tepid wage growth by shutting their wallets, a disappointing outcome that sent the local dollar sliding as investors pushed out the chance of any rate hike.

Futures are now implying only a 20% probability of a hike by Christmas next year, down from 40% earlier this week.

Wednesday's GDP report showed Australia's economy expanded 0.3% in the third quarter, half of what the market had expected.

Annual GDP rose by a still-respectable 2.8%, but confounded expectations for a 3.3% increase.

The figures imply growth in the year to June was 3%, rather than the originally reported 3.4%.

The data will not be welcomed by the Reserve Bank of Australia (RBA), which predicts growth of around 3-1/2% this year and next.

Australia's economy has generally outperformed its rich world peers in recent years and is in its 28th year of growth without a recession. But while the RBA has maintained its optimism, the market is increasingly getting bearish on future momentum as Australia's once-booming housing market hits the brakes, with potentially adverse effects on consumer wealth and spending.

A long stretch of unusually slow wages growth has also throttled household incomes.

Indeed, a major drag in Wednesday's report came from private consumption, which added a mere 0.2% to growth after 0.7% in the June quarter.

The GDP report showed that while employers were taking on a lot of new workers they weren't paying them much more, so average wages rose by just 0.2% in the quarter.

This soft underbelly of the economy is a major worry for the Reserve Bank of Australia.  Adding to the case for caution is the ongoing U.S. trade dispute with China, Australia's single most lucrative export market. Thus while the RBA is still tipping economic growth of 3.5% this year and next, it shows no inclination to tighten anytime soon.

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