SYDNEY, June 3 (Reuters) - Australia's economy slowed in the March quarter as a boom in data centers sucked in imports, but domestic demand still ran hot, a reason the central bank had to raise interest rates three times this year to tame inflation.
The pullback is likely to worsen as the Middle East conflict and rapid-fire policy tightening sent household spending falling, house prices flatlining and the unemployment rate edging higher.
Real gross domestic product (GDP) rose 0.3% in the first quarter,
easing from a 0.9% jump the previous quarter, data from the Australian Bureau of Statistics showed on Wednesday. Market forecasts were for 0.5%, but with downside risks.
Annual growth held steady at 2.5%. The Reserve Bank of Australia judges the economy cannot grow much above 2.0% without generating inflation, leading it to raise rates three times so far this year.
The slowdown was largely driven by a surge in imports of data center equipment and fuel, with net trade subtracting 0.8 percentage point from GDP growth. Domestic demand contributed a whopping 1 percentage point to GDP growth, with machinery and equipment adding 0.7 ppts alone.
The data failed to move the dial on policy. The Australian dollar was flat at $0.7178 and the three-year government bond futures held earlier losses at 95.44.
Swap markets imply a 7% chance of a fourth rate hike from the RBA next month, while pricing in a total of 23 basis points of tightening for this year.
The central bank expects the economy to slow further to an annual growth of 1.9% by the second quarter and to 1.3% by the end of the year.
(Reporting by Stella Qiu and Wayne Cole; Editing by Himani Sarkar and Jacqueline Wong)
