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UPDATE 1-Australia economy gathers pace, consumers make a comeback
March 5, 2014 / 1:31 AM / 4 years ago

UPDATE 1-Australia economy gathers pace, consumers make a comeback

* Economy grows 0.8 pct in Q4, 2.8 pct for year to beat forecasts

* Net exports and household spending offset mining slowdown

* Signs stimulus gaining traction to keep interest rates on hold

By Wayne Cole

SYDNEY, March 5 (Reuters) - Australia’s economy picked up pace last quarter as surging resource exports and a revival in consumption offset weakness in business spending -- a sign it was weathering a slowdown in a once-in-a-century mining investment boom.

The local dollar hopped higher after growth accelerated to 2.8 percent in the fourth quarter, up from 2.3 percent the previous quarter and the fastest pace in a year. It was also a step closer to the usual pace expected for a country that has not suffered a recession in 22 years.

“Better than expected -- all that fuss about nothing. The Australian economy is still motoring along and even a little bit stronger than many had feared,” said Shane Oliver, head of investment strategy at AMP Capital Investors.

“The economy is weathering the mining investment downturn reasonably well.”

Wednesday’s data from Australian Bureau of Statistics showed gross domestic product (GDP) rose 0.8 percent in the fourth quarter from the third quarter, when it increased 0.6 percent.

That pipped analysts’ forecasts of 0.7 percent and helped lift the local dollar a third of a U.S. cent to $0.8980 . It will also be a relief to the Reserve Bank of Australia (RBA) which recently closed the door on the prospect of another rate cut, given signs stimulus was gaining traction.

Rising house and share prices have fattened household wealth, boosted consumer confidence and revived home building. Approvals to build new homes hit their highest in over a decade in January and promise a bonanza for construction this year.

Such strength will be sorely needed as a long boom in mining investment is finally rolling over and is already shaping up as a major headwind for the economy.

Business cutbacks took a hefty 0.6 percentage points out of growth in the quarter, and the drag will only get larger.


Wednesday’s data showed the value of all goods and services produced in Australia was worth A$1.55 trillion ($1.35 trillion) in current dollars, or about A$67,065 ($60,000) for each of Australia’s 23.4 million people. That compares favourably with per capita GDP in the United States of $53,823.

Adding most to growth was international trade as the mountains of money spent on mining expansions boosted export volumes, while imports declined as some mining projects got closer to completion.

A lot of this output is headed for China, which has a seemingly inexhaustible appetite for resources. Goods exports to China hit a record A$27.2 billion in the fourth quarter of last year, an increase of 45 percent on the same period in 2012.

So it was positive that Chinese Premier Li Keqiang on Wednesday told the National People’s Congress the aim was to maintain economic growth of 7.5 percent this year.

In all, net exports added 0.6 percentage points to Australia’s GDP last quarter, and no less than 2.4 percentage points for all of 2013.

Importantly household consumption is also showing hints of awakening after a long period of slumber, making its biggest increase in almost two years.

Consumers have chosen to save more and spend less ever since the global financial crisis rattled confidence, but that looks to be changing now. Savings as a share of disposable income fell almost a full percentage point to 9.7 percent in the quarter, the lowest reading since mid-2010.

There was also good news on inflationary pressures in the report with productivity up strongly in the quarter while unit labour costs fell for the third quarter in four. ($1 = 1.1176 Australian dollars) (Reporting by Wayne Cole; Editing by Eric Meijer)

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