Wednesday, March 5, 2014

Australia GDP better than expected

Australia’s economic growth was better than expected in the December quarter of last year, rising +0.8%.  That’s ahead of consensus expectations of around +0.7% and up on the +0.6% recorded in the September quarter.    Annual growth came in at +2.8% with annual average coming in at +2.4%.

The good news is the Australian economy appears to be coping with the challenging transition following the mining investment boom.  In particular there was a 2.4% increase in exports leading to a strong contribution from net exports over the quarter.

Consumer spending and dwelling investment both posted solid increases which were helped along by a modest decline in the savings ratio which fell from 10.6% to 9.7%.  Take note New Zealand: a high savings rate can provide some buffer for spending when times are tough.  No savings, no buffer.

As had been signalled last week, private sector investment was weak over the quarter but this was partly offset by a surprise increase in public capital investment.

This result put alongside the recent lift in business confidence, building approvals and retail sales suggest the Australian economy is coming through the post mining investment boom in reasonable shape and that lower interest and exchange rates are having some impact on exports interest rate sensitive sectors of the economy.

Our Economics team in Sydney is forecasting a pick-up in growth this year with annual average growth likely to come in at around 3.0%.  That’s on the back of strong growth in exports but with consumption and dwelling investment making solid contributions too.