Australia's economic growth continues

March 4, 2010

Recession, what recession? Australia's economic growth accelerated in the last quarter with analysts saying the results look likely to fuel more interest-rate hikes to prevent the economy from over- heating. All in all, this is great news for Jobseekers. Australia's gross domestic product grew a seasonally adjusted 0.9% in the October-December quarter, increasing from the 0.3% growth experienced in the prior period, the Australian Bureau of Statistics reported. Compared to the year-earlier quarter, gross domestic product was up 2.7%, above economists' forecasts for a 2.4% rise. Analysts at Barclays Capital said the economic gains appear likely to continue. “The drivers of growth, in our opinion, look sustainable. ... Private-sector investment intentions are strengthening, the national government has committed to large infrastructure spending and also faces an election in the coming year," they said. Growth in the GDP was spurred by a 3.5% increase in private investment in the period, a 10.2% increase in public investment, and a 0.7% increase in household spending, according to the data. Key industries were manufacturing, which saw a 5.1% increase in volume, and wholesale trade, which rose 3.6%. Several analysts agreed the data won't change expectations for the Reserve Bank of Australia to raise its policy cash rate further. "The report adds more evidence that Australia recovery is well underway, backing additional rate hikes from the RBA”, analysts at Action Economic said. On Monday, the RBA raised its interest rate by a quarter point to 4.0%, as most had expected, marking the central banks' fourth rate increase in five meetings. Barclays analysts agreed that more hikes are coming, but added that any faster-than-expected tightening would depend on slightly stronger growth going forward. "In the statement accompanying its rate hike yesterday, the RBA said that it thought the economy was already running at or close to potential (3%), so we think the economic data would have to begin to imply above-trend growth in order to accelerate the RBA's rate-hiking cycle," they said. They added that rising imports could be a drag on future growth, as has historically been the case "when investment has been such a strong driver." But they said that the likelihood of a widening current-account deficit in coming years has already been noted by the RBA and therefore wouldn't have "a significant impact on its rate decisions."