Economy receives jolt

But wages and spending remain subdued

AUSTRALIA’S economy kicked off the year with stronger than expected growth, official figures reveal, but wages growth and consumer spending remains weak.

The economy had expanded 1 per cent in the three months to March, compared with the previous quarter, according to national accounts published yesterday.

It took the annual rate of growth to 3.1 per cent – its strongest level in almost two years.

The numbers were slightly ahead of market forecasts for quarterly growth of 0.9 per cent and an annual lift of 2.8 per cent.

A strong rise in exports, in particular those for coal, iron ore and liquefied natural gas, accounted for half the increase in gross domestic product in the quarter, the Australian Bureau of Statistics report shows.

The economy was also supported by strong government spending on transport and infrastructure, and improvement in housing investment.

CommSec senior economist Ryan Felsman said the March quarter’s economic growth, the equal best rate recorded in six years, took Australia’s economic expansion well into its 27th year.

“The Aussie economy is in rude health,” he said.

Despite the strong headline figures, consumer spending remained weak, rising 0.3 per cent in the quarter, with much of that going on insurance, energy and fuel bills, while spending at restaurants and on alcohol slipped about 2 per cent.

BIS Oxford Economics head of macro-economics Sarah Hunter said in a note that weak spending remained a weight on the economy.

“With jobs growth slowing sharply, wage rises still tracking inflation (resulting in no real wage gains for the average worker), and house price falls reducing households’ net worth, we expect spending momentum to remain subdued through the rest of this year,” Ms Hunter said.

JP Morgan economist Tom Kennedy said longer-run growth prospects remain challenged and less upbeat because household consumption is hamstrung by benign wages growth and a low saving rate.

The GDP figures showed total income paid to workers grew by just 1.2 per cent in the March quarter.