Australia economy surges in Q1, forces rethink on rates
SYDNEY (Reuters) - Australia's resource-fuelled economy outpaced all expectations last quarter as households and businesses went on a spending spree, boosting the local dollar and lessening the urgency for further aggressive cuts in interest rates.
Gross domestic product (GDP) rose 1.3 percent in the first quarter, more than double the 0.5 percent increase forecast. Growth was a robust 4.3 percent higher compared with the first quarter of 2011, the fastest pace in more than four years.
Concerns about growth globally, and particularly in China, will continue to haunt the outlook but analysts were cheered that the economy had more momentum than anyone had supposed.
"Rumours of the economy's death have been totally exaggerated," said Michael Blythe, chief economist at Commonwealth Bank of Australia.
"It does tell you we had a decent amount of momentum in the run up to the latest round of the European woes, and it's not a bad place to be in."
The Australian dollar jumped two-thirds of a cent on the upbeat data to $0.9844. Interbank futures slid as the market scaled back expectations for how far and how fast interest rates would be cut from here.
Only the day before, the Reserve Bank of Australia (RBA) had cut rates for a second month running, in part because domestic growth has disappointed while the global outlook turned ever darker.
"For the RBA it's all about forward-looking risks and Europe's the main source of those," added Blythe. "But these sorts of numbers would suggest they won't be looking to aggressively cut rates from here unless something really does go wrong in Europe."
EXTRAORDINARY AND EXCEPTIONAL
The data were eagerly seized on by the Labour government. which is trailing badly in the polls as it pushes ahead with unpopular fiscal tightening and carbon tax plans.
"Today's National Accounts paint an extraordinary picture of exceptional growth, and showcase the rock-solid economic fundamentals which put our economy in a league of its own," crowed Treasurer Wayne Swan.
Australia's annual growth of 4.3 percent compared with 1.7 percent in the United States, zero growth in the European Union and a fall of 0.1 percent in Britain.
In all, GDP for the 12 months to March reached a real A$1.35 trillion ($1.32 trillion), or some A$64,000 for each of Australia's 22.8 million people. That compared to per capita GDP in the United States of around $43,000.
Australia was one of the very few advanced economies to sail through the global financial crisis without sliding into recession, largely propped up by Chinese-led demand for its coal, iron ore and other resources.
While the Chinese economy has since slowed markedly, miners continue to invest heavily in the belief demand from its urbanising millions will run for years yet.
Wednesday's data showed spending on engineering projects such as mines and liquefied natural gas jumped 20 percent in the first quarter to be up a heady 53 percent on the year. That alone added 1.1 percentage points to GDP growth in the quarter.
It also helped offset a drag from international trade where falling export prices and rising imports took 0.5 percentage points from growth.
The other big surprise was the strength of household demand, which climbed 1.6 percent in the quarter. That was the biggest rise in four years and contributed 0.9 percentage points to GDP.
The spending was also broad-based, with sizable increases in food, health, education, clothing, transport and restaurants.
Solid gains in wages and salaries helped support spending habits while also allowing households to save a relatively high 9.3 percent of disposable income.
Intense discounting by retailers played a big part in driving demand, while keeping inflation well contained. The price deflator of household spending edged up a tiny 0.1 percent in the quarter to be up a benign 1.4 percent for the year.
That should in turn provide scope for the RBA to ease further should events in China or Europe turn for the worse.
"The RBA has been setting policy with an eye toward Europe, and things there will continually get worse," noted Ben Jarman, an economist at JPMorgan.
"But the underlying domestic story is pretty favourable and isn't forcing them to up the pace of what they're doing," he added. "We don't expect the RBA to move in July. We think the next cut will come in August."
(Reporting by Wayne Cole; Editing by Alex Richardson)
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