Disappointing Australian economic growth adds to rate cut case

Wednesday 05 June 2013 08.01
Australian GDP rose by 0.6% in the first quarter of 2013
Australian GDP rose by 0.6% in the first quarter of 2013

Australia's economy posted a second quarter of moderate growth in a row as a drop in business investment offset gains in trade and consumer spending at the start of 2013.

Analysts will view the figures with disappointment, which will only reinforce the case for lower interest rates.

The Australian Bureau of Statistics said that gross domestic product (GDP) rose 0.6% in the first quarter.

This matched the previous quarter but fell short of forecasts of 0.8% and was below par for a country that has not suffered a recession for more than two decades.

A stubbornly high currency is hammering the manufacturing sector, while a lack of confidence haunts consumers and business alike. And it is far from clear how the economy will cope when a long boom in mining investment finally plateaus this year.

The Reserve Bank of Australia (RBA) cut interest rates to a record low of 2.75% in May and said this week it was ready to ease again if needed. Markets have priced in a cut to 2.5% by October.

The bureau said that the value of all goods and services produced in Australia was 2.5% higher than in the first quarter of 2012. That was also a little below forecasts, though the world's 12th-largest economy did at least outpace its peers.

Comparable growth in the United States was 1.8%. The UK eked out annual growth of 0.6% last quarter, while the EU economy contracted by a full percentage point.

Output for the 12 months to March was worth $1.5 trillion, or about $64,800 for each of Australia's 23 million people.

The main growth driver was trade as the country imported less while past spending on mining and liquefied natural gas projects lifted exports, a trend that has years to run. Net exports, or exports minus imports, added 1.0 percentage points to growth for the biggest contribution in four years.

Australian consumers also chose to spend a bit more freely, which lifted household consumption 0.6%. But a more cautious attitude was evident in savings, which edged up to a high 10.6% of disposable income.

Businesses also cut back spending on plant and machinery, while home building stayed frustratingly flat in the quarter. Fortunately for the prospects of future rate cuts, there was little sign of inflation in the report, with unit labour costs falling sharply.

Keywords: australia, economy