Australian growth hits 2.6% year on year SYDNEY, September 4 - Australia's economy grew moderately last quarter as modest gains in consumer and government spending offset a flat performance elsewhere, though there was still scant sign of a much-needed recovery in business investment. The Australian Bureau of Statistics reported gross domestic product rose 0.6 per cent in the second quarter, from the previous quarter when it rose 0.5 per cent. That was enough to send the local dollar higher as there had been fears the report would be much weaker. The result marked 22 years since the country last suffered a recession, but still underwhelmed. Crucially, there are few signs that business and consumer spending is ready to take over from mining investment as a growth engine. The country votes in national elections on Saturday, which opinion polls suggest will be won by the opposition conservative National-Liberal coalition that has criticised the ruling Labor party's handling of the economy and in particular the mining resources boom. "Overall it [the GDP data] tells us that the economy is continuing to grow but at a very subdued rate, and it's not strong enough to push employment or inflation up," said Shane Oliver, chief economist at AMP Capital Investors. We're still far from the collapse that many had feared, but we're still looking for a replacement for mining investment as a driver for growth. The Reserve Bank of Australia has been doing its part by cutting interest rates to a record low of 2.5 per cent last month. Many analysts think it will probably have to ease again before the end of 2013. Financial markets, on the other hand, have pared back expectations for any more easing, in part because of brighter signs in the global economy and especially China, which accounts for a third of Australia's exports and influences the price for many of its commodities. A stabilisation of demand is seen as a promising omen. It has been enough for investors to question whether the RBA is done with its easing cycle, a run that began back in November 2011 when rates were up at 4.75 per cent. Interbank futures show a 50 per cent chance of a rate cut by Christmas, down from more than 100 per cent a couple of weeks ago. Swap markets have priced out any easing at all, though much depends on how the Australian dollar fares. The central bank wants the currency to fall further to help cushion the economy, by boosting export earnings and by easing competitive pressures on domestic industry. Many analysts suspect that should the dollar hold above 90 US cents as it was on Wednesday, the RBA will choose to offset it by cutting again. Wednesday's data showed the value of all goods and services produced in Australia was 2.6 per cent higher than in the second quarter of 2012. That was short of the 3.25-3.5 per cent pace that economists consider "normal," though the world's 12th-largest economy did at least outpace its peers. Output for the 12 months to June was worth A$1.51tn in current dollars, or about A$65,163 ($59,233) for each of Australia's 23m people. That compares with per capita GDP in the US of $52,712. However, growth was narrowly based with only small contributions from consumer and government spending, as well as inventories. Pretty much every other sector was flat in the quarter. Especially disappointing was that home construction added nothing at all to growth. While home building only accounts for 5 per cent of the economy it does have huge spillover effects into employment and consumption and a typical recovery can add a percentage point or more to growth over a couple of years, something the RBA was keen to see taking the place of mining investment.