Economy’s surprise gain

GDP defies expectations with growth of 0.5pc

AUSTRALIA’S economy put in a better than expected performance during the back end of 2019 with GDP growing 0.5 per cent in the December quarter.

The rise in quarterly gross domestic product narrowly beat market consensus of 0.4 per cent growth, while annual growth accelerated to 2.2 per cent from 2.0 per cent in the September quarter.

Yesterday’s figures are largely free of the worst bushfire-related impacts and are too early to have felt the weight of the coronavirusdriven rout of the economy. Australian Bureau of Statistics chief economist Bruce Hockman noted the rate of growth remains below the long-run average, but Commsec chief economist Craig James was more upbeat.

He heralded the year-ending data as the 28th consecutive year of economic growth.

“The gloomsters will be disappointed, again,” he said.

“The record economic expansion continues.”

While the construction industry lagged, consumer and government spending helped the economy, according to Mr James. BIS Oxford Economics chief economist Sarah Hunter described momentum for 2019 as slow and steady.

“But conditions have clearly changed markedly since then,” she said. “The coronavirus outbreak is putting a substantial strain on the global economy.”

The virus outbreak was a key factor in the Reserve Bank’s decision to cut the cash rate to a record low of 0.5 per cent on Tuesday.

In his address following the March board meeting, RBA governor Philip Lowe said earlier forecasts that the economy had reached a “gentle turning point” were now under a cloud on account of COVID-19. GDP growth in the March quarter is likely to be “noticeably weaker” than earlier expected.

“Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end,” Dr Lowe ( pictured) said in his address after Tuesday’s board meeting.

The details of yesterday’s GDP result show domestic demand remained subdued with 0.1 per cent growth in the December quarter.

A rise in household discretionary spending and continued increases in providing government services was offset by falls in home and business investment.

Australia’s bushfires and other weather-related events prompted a higher number of insurance claims, which contributed to household income. The household saving to income ratio was 3.6 per cent.