(Adds analyst reaction, detail)
* Q1 GDP up 1.3 pct q/q, far above forecasts of 0.5 pct
* Household spending and business investment drive growth
* Market pares expectations on speed and extent of rate cuts
* Aussie dollar jumps more than 1 percent
By Wayne Cole
SYDNEY, June 6 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
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 <0#YIB:> 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
"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 Labor 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)