Australia’s economic growth pace has slowed in the face of three interest rate rises and could be squeezed further with economists expecting another Reserve Bank hike to tackle persistent inflation during a prolonged productivity crisis.

Gross domestic product in the year to June 30 eased to 2.1 per cent, down from March’s annual pace of 2.5 per cent.

The weaker growth pace was still better than market expectations of a 1.8 per cent expansion and the Reserve Bank’s August prediction of a 1.9 per cent increase, which has stirred expectations of another interest rate increase in less than four weeks’ time.

The latest national accounts data from the Australian Bureau of Statistics comes as three of the big four banks — Commonwealth, NAB and ANZ — forecast another hike this year that would take the cash rate to a 15-year high of 4.6 per cent, with inflation in July remaining above the RBA’s 2-3 per cent target for the 12th straight month at 3.5 per cent.

“The risk is an earlier hike in September remains in place after today’s data,” the Commonwealth Bank’s head of Australian economics Belinda Allen said.

“We continue to expect the Australian economy to slow from here given three interest rate hikes to date and one more to come.”

Australia’s productivity crisis shows no sign of recovering with output for every hour worked shrinking by 0.2 per cent during the last financial year to be flat in the June quarter, meaning higher production costs are more likely to be passed on to customers, which keeps inflation high.

GDP per capita, or the value of all goods and services produced divided by Australia’s population, was flat in the June quarter as overall GDP grew by 0.4 per cent during that three-month period.

Marc Jocum, senior investment strategist with Global X ETFs, said the RBA could be forced to hike rates again at its next meeting on September 29.

“With consensus now shifting towards another rate hike this year, today’s stronger-than-expected growth makes it increasingly difficult for the RBA to justify sitting on its hands,” he said.

“The RBA now faces an ugly policy dilemma. The lagged effects of previous rate hikes are still working through the economy, but inflation remains stubbornly high.

“That could make for a tough second half of the year, with the uncomfortable spectre of stagflation looming large.”

The construction of new data centres to power artificial intelligence and renewable energy projects had fuelled business investment, the ABS data showed.

Deloitte Access Economics partner Stephen Smith, however, said the AI boom alone would be unlikely to solve Australia’s productivity crisis that is prolonging Australia’s inflation problem and making another rate rise this month more likely.

“Australia is experiencing inflation at rates of growth that would have once been unremarkable,” he said.

“That is the defining challenge of a low-productivity, supply-constrained economy.”

Treasurer Jim Chalmers noted Australia’s annual economic growth pace was equal to the world-leading US, which has a much lower 3.75 per cent key interest rate compared with Australia’s 4.35 per cent cash rate.

“Annual growth in Australia was as strong or stronger than every major advanced economy – equal to the United States and much stronger than the rest,” he said.

“This is a robust result in challenging international circumstances.

“It shows the resilience of Australia’s economy in the face of global uncertainty and conflict.”

But shadow treasurer Tim Wilson said high spending by Anthony Albanese’s Labor Government risked sparking more rate rises and a recession.

“Because they can’t kick their spending addiction or live within their means, the Prime Minister and Treasurer are playing a game of interest rate and recession chicken with the Reserve Bank,” he said.

“The only message from the national accounts is the Albanese active inflation agenda is keeping pressure on interest rates, and sending Australians’ wages and living standards backward.”

Without data centres, overall private investment was otherwise weak and failed to contribute to GDP growth.

The Australian Chamber of Commerce and Industry warned that onerous restrictions on data centres would deprive Australia of much-needed new technology, as these projects attracted the likes of electricians, engineers and project managers during a housing shortage.

“Blanket restrictions, moratoriums or one-size-fits-all rules would drive investment offshore without solving energy, water or planning constraints,” it said in a submission to a Senate inquiry on AI and data centres.

“Policy settings should focus on increasing overall skills capacity through apprenticeships, training and skilled migration, rather than forcing a choice between building digital infrastructure needed for an AI-enabled economy and delivering other national priorities such as housing.”

Household consumption grew by just 0.4 per cent in the June quarter, thanks to record purchases of electric cars as the Iran war keeps crude oil prices at higher levels.

Australians are nonetheless saving more, with 6.5 per cent of income put away in the June quarter, up from 6.4 per cent in the March quarter, as a result of wage rises, bank interest and inflation-indexed social security benefits causing disposable incomes before taxes and bills to outpace household spending increases.