Australian economy sees unexpected growth

Australia’s economic growth unexpectedly accelerated in the second quarter, driving the nation’s currency higher on expectations the central bank will raise borrowing costs from a half-century low.

Gross domestic product rose 0.6 percent, the biggest gain in more than a year, from the previous three months when it grew 0.4 percent, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for a 0.2 percent expansion.

Today’s report confirms central bank Governor Glenn Stevens’ view that the economy has been “stronger than expected” as A$20 billion ($16.6 billion) of government cash handouts boosted spending at retailers such as Woolworths Ltd. and Harvey Norman Holdings Ltd. Australia joins other developed nations, including France and Germany, that are rebounding from the deepest global recession since the Great Depression.

“Australia clearly is in a sweet spot, one that we expect to extend through to year end,” said Glenn Maguire, chief Asia- Pacific economist at Societe Generale in Hong Kong. The Reserve Bank will raise interest rates by a quarter-percentage point in November, he added.

The Australian dollar rose to 83.04 U.S. cents at 12:38 p.m. in Sydney from 82.73 cents just before the report was released. The two-year government bond yield gained 7 basis points to 4.39 percent. A basis point is 0.01 percentage point. The benchmark S&P/ASX 200 index has climbed 41 percent since March 6.

Government Stimulus

Governor Stevens and his board left the overnight cash rate target at a 49-year low of 3 percent yesterday for a fifth month as the economy strengthens. GDP may expand further in coming quarters as the government spends A$22 billion on roads, railways and schools.

Traders forecast the central bank’s overnight cash rate target will be 175 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:35 p.m. in Sydney.

Consumer spending jumped 0.8 percent in the second quarter, the largest gain since the three months through December 2007, adding 0.5 percentage points to GDP.

The economy grew 0.6 percent from a year earlier, twice the pace forecast by economists, today’s report showed.

Analysts had cut their growth forecast in the past two days after reports showed a widening current account deficit in the second quarter and a record drop in business inventories.

Global Rebound

Government stimulus also helped lift Germany out of it its worst recession since World War II, a report showed on Aug. 25. Europe’s largest economy grew 0.3 percent from the first quarter, after four quarters of contraction. France’s economy, the second-biggest in the euro region, unexpectedly exited a year- long recession, gaining by the same amount as Germany.

By contrast, the U.K.’s economy shrank 5.5 percent in the second quarter, the most since records began in 1955, and U.S. GDP dropped 1 percent.

Today’s report showed engineering construction jumped 5.2 percent in the second quarter. The government last month approved Chevron Corp.’s A$50 billion liquefied natural gas venture, which will leapfrog Australia to second place behind Qatar as the world’s biggest LNG producers.

The Reserve Bank scrapped its forecast last month for the economy to contract this year, instead predicting gross domestic product will expand 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011.

Retail Profits

Reports this week showed building approvals rose for a second month in July and manufacturing expanded in August for the first time in 14 months. Consumer and business confidence have also surged to the highest levels in almost two years.

Woolworths Ltd., Australia’s largest retailer, said last week that profit in the six months ended June 28 jumped 16 percent.

“The troubles are probably behind us now and things are looking a lot better,” Gerry Harvey, chairman of Australia’s biggest electronics seller, Harvey Norman, said on Aug. 28. “Consumer sentiment is much higher than it was six months ago and there’s no reason to believe that won’t continue.”

Harvey Norman’s earnings in Australia, where it gets three quarters of its revenue, rose 4 percent in the year ended June 30.

“The stimulus is helping Australia defy global economic gravity,” Treasurer Wayne Swan told reporters in Canberra today. “Without economic stimulus, our economy would have contracted.” The government would start withdrawing its stimulus from the fourth quarter, he said.

The chain price index, a measure of retail prices, declined 2.2 percent in the second quarter from the previous three months, today’s report showed.

Source: Bloomberg

Leave A Reply

Your email address will not be published.