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HomeAFPAustralia’s economy soars in strong start to 2018

Australia’s economy soars in strong start to 2018

Australia’s economy recorded a strong start to the year as exports and business inventories rose, official data showed Wednesday, but analysts warned soft consumer spending would keep a rise in interest rates at bay.

The 1.0 percent growth in the first three months of 2018 was a sharp rise from the revised 0.5 percent in the previous quarter, and took the annual rate to 3.1 percent.

The expansion was the strongest since the June quarter of last year, and above central bank and analysts’ expectations.

The new figures sent the Australian dollar jumping a quarter of a cent to 75.56 US cents.

“The Australian economy… is once again back up above the long-running average (of about 3.0 percent) again,” Treasurer Scott Morrison told reporters in Canberra.

“Australia is… leading the advanced economies of the world, bettering the average growth in the OECD, and, of course, all of the G7 nations once again.”

The economy has experienced an uneven period of growth as an unprecedented investment in mining ended, with the Reserve Bank of Australia (RBA) cutting interest rates to a record low of 1.50 percent since late 2011 to boost non-resources industries.

Businesses have posted stronger profits and boosted inventories, but consumer spending has been a weak point amid tepid wages growth.

Growth in exports for the January-March period accounted for half of GDP growth and reflected the strength in exports of mining commodities, while inventories contributed 0.2 percentage points.

Government spending jumped 1.6 percent for the quarter, as household expenditure increased by 0.3 percent for the quarter with consumers spending more on fuel and financial services and cutting back on eating out and buying alcohol.

– ‘Soft consumer story’ –

“While this is definitely a strong print in terms of the headline magnitude, the consumption story is still pretty soft,” JP Morgan economist Tom Kennedy told AFP.

“That might be symptomatic of the saving rate already being very low and wage levels being very benign. Households are constrained… on how much more they can spend.”

Uncertainty about consumer spending and wages growth, as well as a weakening housing market after its recent boom, have seen economists tip the Reserve Bank to remain on the sidelines for several more months.

“We don’t think today’s data shift the needle for the near-term outlook for monetary policy,” Commonwealth Bank of Australia senior economist Gareth Aird said in a note, adding that he expected the cash rate to be unchanged for the rest of 2018.

“But it adds weight to the RBA’s view (and ours) that the next move in rates is expected to be up rather than down.”

RBA governor Philip Lowe said Tuesday as he kept rates on hold for a 20th-straight meeting that GDP growth was expected to average a bit above 3.0 percent this year and in 2019.

He said there has been strong growth in employment and a significant lift in labour participation, while wages growth remained low with gradual improvements expected going forward.

Capital Economics chief Australia and New Zealand economist Paul Dales cautioned that an ongoing royal commission probing misconduct among Australia’s finance industry could weigh on the economy if it leads to slower credit growth.

AFP


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