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Australia Speeds to 3% Growth

Australia Speeds to 3% Growth
Australia Speeds to 3% Growth

Australia’s economy outpaced all forecasts to grow at the fastest pace in almost two years last quarter, a hopeful sign the worst of the global commodity rout may be over for the resource-rich nation.

Wednesday’s upbeat report sent the local dollar leaping half a US cent as investors reined back expectations of further cuts in interest rates, while providing a political boost to the coalition government of Malcolm Turnbull, Reuters reported.

Turnbull faces a national election later this year and an improving economic background could argue for him to go a few months early, perhaps in July.

Gross domestic product grew 0.6% in the fourth quarter, from the previous quarter when it rose an upwardly revised 1.1%.

That propelled growth for the year to 3%, well above the 2.5% that had been expected by both analysts and the Reserve Bank of Australia.

“Given Australia is going through the biggest mining pullback in our lifetimes, this is a pretty good outcome,” said David de Garis, a senior economist at National Australia Bank.

“Our baseline is that the RBA is done cutting rates, and these numbers only support that view.”

The central bank has held rates steady since May last year and just this week skipped a chance to ease, saying it saw “reasonable prospects” for growth.

Investors are still wagering it will have to ease eventually given the headwinds facing the global economy, but likely not as quickly. Interbank futures now imply a 45% chance of a cut by May, compared to 60% before the data.

The RBA would prefer that any further stimulus come through a lower Australian dollar, but is being thwarted by the drastic easing of central banks elsewhere.

The slowdown in China also remains a major uncertainty since the Asian giant takes almost a third of Australia’s exports.

Yet the RBA estimates the worst of the drag from mining will be over this year, while record low rates, rising house prices and a boom in home building continue to juice domestic demand.

Household consumption is clearly on the mend adding just over half of the economic growth seen over 2015, while home construction added another half a percentage point.

Overall, the Australian Bureau of Statistics reported the value of goods and services produced was worth A$1.63 trillion ($1.18 trillion) in current dollars, or around A$68,400 for each of its 24 million residents.

Annual growth of 3% handily topped the 2.1% boasted by Germany in 2015, as well as the 1.9% enjoyed by the United States and UK, and Canada’s 1.2%.

Importantly, the acceleration in growth made the strength of employment in recent months seems less of an outlier.

 

Financialtribune.com