(CEP News) - Tuesday evening, markets will receive Australian Q1 GDP, which is expected to rise 0.3% following a prior rise of 0.6%. Year-over-year, the Australian economy is expected to grow 2.8% following a previous rise of 3.9%.

Julian Jessop, chief international economist at Capital Markets, predicts that the deceleration in growth will vindicate the Reserve Bank of Australia’s decision to keep interest rates on hold at 7.25%.

All times in EDT:

19:30 AU AiG Performance of Service Ind May Prior: 47.3

19:50 JN Capital Spending 1Q Exp: -9.6% Prior: -7.7%

19:50 JN Capital Spending excl Sftwre 1Q Exp: -7.3% Prior: -7.3%

21:30 AU Gross Domestic Product (Q/Q) 1Q Exp: +0.3% Prior: +0.6%

21:30 AU Gross Domestic Product (Y/Y) 1Q Exp: +2.8% Prior: +3.9%

(CEP News) - Australia’s economy is expected to continue its slowdown, with economists forecasting that the Gross Domestic Product (GDP) slowed to just 0.3% in the first quarter of 2008, though expectations range from -0.2% to 0.5%.

On an annual basis, GDP is expected to come in at 2.8%, down from the previous annual rise of 3.9%.

"The Australian economy appears to have slowed more abruptly early in 2008 than we originally anticipated," economists from Westpac wrote in a research note. They noted the economy was hit by a number of headwinds, such as sharply higher interest rates, tighter credit conditions, greater global uncertainty and flood disruptions.

"Consumers and business capped their spending in the period and exports disappointed," they wrote.

Katie Dean, a senior economist from ANZ, agreed that a decline in consumer and business spending are largely responsible for the expected weak GDP figure.

"We already know that higher local interest rates and petrol prices, set against a backdrop of global financial market turmoil and a collapse in the local equity market, saw consumer and business spending pull back sharply," she wrote in a research note. "In the absence of a surprisingly large inventory build-up, these factors should push the expenditure side of the national accounts, GDP(E), into negative territory."

The GDP reading should "vindicate" the Reserve Bank of Australia’s decision to hold rates at 7.25%, said Julian Jessop, chief international economist at Capital Economics.

Economists from Bank of America are a little more bearish in their forecast, calling for a flat or even negative GDP reading based on the construction work and private capital surveys released last week.

"The investment reports did show strength in infrastructure spending (engineering) but a flat quarter for residential construction and a decline in business investment on plant and equipment," they noted.

However, they acknowledged that both reports showed the pipeline of work, and planned investment in fiscal year 2008-09, remain strong despite the tougher global business climate. "These pipelines and investment intentions are of course subject to pullback risk but it certainly tempers any disappointment about the weak contribution of investment to first quarter GDP," they said.

Australian GDP data will be released by the Bureau of Statistics Tuesday at 9:30 p.m. EDT.