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September, 201810:47 AM



Australia's economy powers ahead as consumers keep spending

Australia's economy powers ahead as consumers keep spending

Australia's buoyant economy posted strong growth in the second quarter of the year on the back of increasing exports, consumer and government spending, official data showed Wednesday.

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05.09.2018 03:49 PM

Australia's buoyant economy posted strong growth in the second quarter of the year on the back of increasing exports, consumer and government spending, official data showed Wednesday.

The economy expanded by 0.9 percent in the March-June quarter, following 0.7 percent growth in the first three months of the year, to take the annual rate of growth to 3.4 percent -- the fastest pace since September 2012.

The quarterly reading was far above market expectations of 2.8 percent, and comes after the previous quarter's year-on-year reading of 3.1 percent.

The increase sent the Australian dollar jumping almost half a cent to 72.17 US cents.

"The national accounts for the June quarter highlight the strength and the resilience of the Australian economy, which is in its 27th year of consecutive economic growth," Treasurer Josh Frydenberg told reporters.

"The economy is strong, the fundamentals are good and momentum has continued and these are an encouraging set of numbers."

The economy has recorded uneven expansion in recent years as an unprecedented period of mining investment reaches its end, with the Reserve Bank of Australia cutting interest rates to a record-low of 1.5 percent to support growth.

Household spending jumped 0.7 percent during the quarter to contribute 0.4 percentage points to growth, while net exports added 0.1 percent.

Government expenditure rose 1.0 percent in the period to continue its stellar growth through the year. 

"(Household) consumption continues to hold up pretty well, facilitated by the savings ratio continuing to fall," JP Morgan economist Henry St John told AFP.

The savings ratio, which measures how much households save in proportion to their disposable income, was at 1.0 percent for the quarter, the lowest since December 2007. 

It had soared to almost 10 percent in 2012 after the global financial crisis.

Slowdown ahead?

The stronger data reinforced expectations that the next move of the Reserve Bank would be to lift rather than cut interest rates.

But analysts said any hike was not likely in the near-term, with wages growth and inflation remaining soft.

"Despite solid growth, the economy is not generating much in the way of wage or price pressures," Commonwealth Bank of Australia senior economist Gareth Aird said in a note.

"There is still plenty of slack in the labour market to chew through."

St John cautioned that exports growth was expected to level out in the second half of the year, while the low savings ratio meant consumers would be unable to further draw down on their reserves.

House prices -- particularly in the larger cities like Sydney and Melbourne -- were also falling this year as tighter lending standards discourage local and international investors, while turbulence in the global economy was a downside risk.

"As the RBA had been expecting growth to be strong, these data don't mean a rate hike is around the corner," Capital Economics' chief economist for Australia and New Zealand Paul Dales said.

"But the markets may start to reconsider their view that rates won't rise until sometime in 2020."

The central bank had forecast GDP growth to be 3.0 percent for the 12 months to June, lifting to 3.25 percent for 2018 and next year.
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