By Jacob Greber
June 3 (Bloomberg) -- Australia’s central bank kept interest rates unchanged for a second month ahead of a report today that may show the nation’s economy has outperformed most of its largest trading partners.
Gross domestic product shrank 0.2 percent last quarter from the previous three months when it fell 0.5 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. The figures will be published at 11:30 a.m. in Sydney today.
Unlike the U.K., Japan, the U.S. and 16-member euro region -- all of which have fallen into recessions -- Australia’s economy may even have expanded in the first quarter, according to some economists, including Savanth Sebastian at Commonwealth Bank of Australia. Central bank Governor Glenn Stevens kept the benchmark lending rate unchanged at 3 percent yesterday.
“It is now becoming clearer that the worst period for the Australian economy is behind us,” Sebastian said.
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 Sebastian.
Among other evidence that Australia is weathering the worst global economic slump since the Great Depression, reports this week showed building approvals jumped twice as much as economists forecast in April, retail sales rose for a second month, new homes sales gained for a fourth month and manufacturing shrank at a slower pace.
Better Than Most
Australia’s economy probably contracted 0.4 percent in the first quarter from a year earlier, according to the median estimate economists surveyed by Bloomberg. 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 fell 4.6 percent and the U.S. slid 2.5 percent.
“Thoughts of Australia having to follow the U.S. belong in the dustbin of previous-century economics,” said Clifford Bennett, senior economist at Kinetic Securities in Sydney. “Australia is last in, and will be first out of recession.”
The Reserve Bank will keep borrowing costs at a 49-year low until next year, the nation’s trade balance will remain in surplus, and mining companies such as BHP Billiton Ltd. will benefit from the “magical historical positioning of being a major commodity exporter on the doorstep of Asia,” Bennett said.
Global Economy
Governor Stevens said yesterday that evidence continues to emerge that the global economy is stabilizing. Rate cuts and government spending “in most countries is helping to contain the downturn, and should support an eventual recovery,” he said.
“The turnaround is clearest in China,” Australia’s largest trade partner, the governor added.
Stevens slashed Australia’s overnight cash rate target by a record 4.25 percentage points to 3 percent between September and April, and said yesterday he has scope to reduce borrowing further “if needed.”
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 key rate 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 25 basis points higher in 12 months, the index showed at 4:16 p.m. yesterday in Sydney. At the start of May, they tipped 37 basis points of cuts. A basis point is 0.01 percentage point.
“We’ve got super-stimulatory monetary policy and we need to reassess whether that’s appropriate for an economy that’s clearly not in a deep recession,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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