Australia Defies Global Recession to Expand 0.4%

By Jacob Greber

June 3 (Bloomberg) -- Australia’s economy has defied a global recession that has swamped the U.S., the U.K. and Japan, unexpectedly expanding in the first quarter on rising exports and consumer spending.

Gross domestic product rebounded to grow 0.4 percent in the three months to March 31 after it contracted a revised 0.6 percent in the fourth quarter, the Bureau of Statistics said in Sydney today. The median estimate of 18 economists surveyed by Bloomberg was for a 0.2 percent decline.

Australia, helped by record interest-rate cuts, government spending and cash handouts to consumers, is one of only a few economies including China and India that expanded last quarter. Central bank Governor Glenn Stevens left the benchmark interest rate unchanged at 3 percent yesterday for a second month amid signs the economy is weathering the worst global slump since the Great Depression.

“The economy isn’t slipping into a recession according to technical definitions,” of two straight quarters of falling GDP, said Matthew Hassan, a senior economist at Westpac Banking Corp. in Sydney.

“But if you look at what’s happening in the labor market and the business sector, all of these are indicators pointing to a recession,” Hassan added.

The Australian dollar rose to 82.21 U.S. cents at 11:32 a.m. in Sydney from 81.91 cents before the report was released. The two-year government bond yield gained 4 basis points, or 0.04 percentage point, to 3.73 percent.

Company Profits

Reports published in the past month show company profits fell 7.2 percent last quarter, and business investment tumbled at the fastest pace on record, dropping 8.9 percent from the previous three months. Unemployment has climbed to 5.4 percent in April from 3.9 percent in February 2008 as companies such as Qantas Airways Ltd. fire workers.

Consumer spending advanced 0.6 percent in the quarter, adding 0.3 percentage points to GDP, today’s report showed. Exports increased 2.7 percent.

Prime Minister Kevin Rudd, who said in April that the country’s economy is in its first recession since 1991, began distributing more than A$12 billion ($9.9 billion) in March to low- and middle-income earners.

Retail sales rose 1 percent in the first quarter, a report showed on May 6. Sales also gained in April.

Woolworths Ltd., Australia’s largest retailer, said last month that sales surged 6.5 percent to A$12.3 billion in the three months ended April 5. Caltex Australia Ltd., the nation’s largest oil refiner, said on April 23 that first-quarter operating profit gained 11 percent.

Home Sales

Among other evidence that Australia is weathering the global slump, reports this week showed building approvals jumped twice as much as economists forecast in April, new homes sales gained for a fourth month and manufacturing shrank at a slower pace.

A government report yesterday showed the current account deficit narrowed in the first quarter as agricultural exports surged. The contribution from overseas shipments to Australia’s economy, or net exports, added 2.2 percentage points to GDP in the March quarter, the statistics bureau estimated.

That’s the largest contribution to GDP from net exports in more than 48 years, according to Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney.

The economy grew 0.4 percent from a year earlier, today’s report said. Economists forecast a 0.4 percent contraction.

By contrast, Japan’s economy shrank 9.7 percent in the year, the U.K.’s GDP dropped 4.1 percent, the 16-member euro region contracted 4.6 percent and the U.S. slid 2.5 percent. The economy of China, Australia’s largest trading partner, grew 6.1 percent and India expanded 5.8 percent.

Rate Cuts

The global turmoil, triggered by last year’s collapse of Lehman Brothers Holdings Inc., prompted Governor Stevens to slash the overnight cash rate target between September and April by a record 4.25 percentage points.

Stevens left the rate unchanged yesterday and signaled that he is prepared to cut borrowing costs from a 49-year low to spur domestic demand “if needed.”

“The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy,” Stevens said.

By contrast, central bankers in the U.S., Japan and Switzerland have benchmark rates that are close to zero. The European Central Bank’s rate is 1 percent and the U.K.’s is 0.5 percent.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Traders forecast the benchmark will be 21 basis points higher in 12 months, the index showed at 8:20 a.m. in Sydney. At the start of May, they tipped 37 basis points of cuts. A basis point is 0.01 percentage point.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net