Oz econ­omy stronger, but growth chal­lenges re­main


Australia’s econ­omy was stronger- than- ex­pected in the first quar­ter of the year as ex­ports and con­sumer spend­ing boosted growth, data showed Wed­nes­day, re­in­forc­ing a de­ci­sion to keep in­ter­est rates on hold af­ter two cuts this year.

The min­ing- driven econ­omy grew by 0.9 per­cent in the first three months of 2015, above an­a­lysts’ ex­pec­ta­tions of 0.7 per­cent, to take the an­nual rate of growth to 2.3 per­cent, Aus­tralian Bureau of Statis­tics fig­ures showed.

The quar­terly growth was an in­crease from 0.5 per­cent in the Oc­to­ber-De­cem­ber pe­riod last year and 0.3 per­cent in the July-Septem­ber quar­ter. But year-on-year growth slowed from 2.5 per­cent in the last three months of 2014.

“This is a good, solid re­sult,” Trea­surer Joe Hockey told re­porters, adding that the ex­pan­sion was “broad-based.”

“Ex­ports con­tinue to sup­port our econ­omy, grow­ing by five per­cent, and this is the strong­est quar­terly re­sult in 15 years ... There is growth in ar­eas such as tourism, ed­u­ca­tion and pro­fes­sional ser­vices.”

The Aus­tralian dollar jumped a third of a U.S. cent to 78.06 U.S. cents af­ter the data was re­leased.

The fig­ures came a day af­ter the Re­serve Bank of Australia kept in­ter­est rates steady at a record-low 2.0 per­cent af­ter cuts of 50 ba­sis points so far this year.

“It’s a good num­ber but it’s not a game changer for us or the RBA,” JPMor­gan econ­o­mist Tom Kennedy told AFP.

“It’s just more ev­i­dence that the Aus­tralian econ­omy is now re­ly­ing on net ex­ports but growth is re­cov­er­ing af­ter a very weak 2014. We think this year will be bet­ter and we think next year is go­ing to be bet­ter again.”

Australia’s econ­omy is tran­sit­ing away from min­ing-led growth af­ter an un­prece­dented boom in re­sources in­vest­ment that has help it avoid a re­ces­sion for more than two decades.

The min­ing boom is shift­ing to­wards the ex­ports stage, as the fig­ures showed. But the move to­wards non-re­sources-led growth has been shaky, with such in­dus­tries yet to fill the gap left by the China-fu­eled min­ing surge.

Ex­ports added 1.1 per­cent­age points to GDP growth in the first quar­ter af­ter jump­ing by five per­cent. House­hold spend­ing in­creased by 0.5 per­cent to con­trib- ute 0.3 per­cent­age points to GDP.

Non-dwelling con­struc­tion fell the most, drop­ping by 4.9 per­cent dur­ing the Jan­uary to March pe­riod to sub­tract 0.4 per­cent­age points from GDP.

Weak In­come Fig­ures

De­spite the strong head­line fig­ures, the in­come side of the econ­omy re­mained weak.

Nom­i­nal GDP, which is not ad­justed for in­fla­tion, rose by 0.4 per­cent for the quar­ter for an an­nual rate of 1.2 per­cent. Real net na­tional dis­pos­able in­come — a mea­sure of the na­tion’s earn­ings and which fac­tors in the terms of trade — lifted by 0.2 per­cent quar­ter-on-quar­ter to be 0.2 per­cent lower for the year.

The soft fig­ures were a re­flec­tion of the weak­en­ing terms of trade, a ra­tio that mea­sures ex­port prices to im­port prices, as com­mod­ity prices plunge and hurt the re­sources-de­pen­dent econ­omy.

The RBA kept the cash rate on hold Tues­day but warned the econ­omy was con­tin­u­ing to grow be­low-trend and was “likely to be op­er­at­ing with a de­gree of spare ca­pac­ity for some time yet.” An­nual trend growth is es­ti­mated to be about three per­cent.

Na­tional Australia Bank

chief mar­kets econ­o­mist Ivan Col­houn said the Re­serve Bank was wait­ing for more data on the econ­omy’s pos­si­ble re­cov­ery.

“They are not cut­ting in­ter­est rates any­time soon just as a gen­eral mat­ter of course be­cause they would al­ways look at the im­pact of their last two cuts, un­less the econ­omy is very quickly de­te­ri­o­rat­ing which it isn’t at this stage,” he told AFP.

“This data sug­gests that it might not be quite as weak as they’ve been fear­ing. But they’re also not go­ing to change their mind quickly that min­ing in­vest­ment is go­ing to be quite weak next year.”

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