By Victoria Batchelor and Jacob Greber
June 4 (Bloomberg) -- Australia’s unexpected economic growth last quarter, driven by government cash handouts and record interest-rate cuts that fueled consumer spending, may mask a bleaker picture.
Gross domestic product rose 0.4 percent from the previous three months, the statistics bureau reported yesterday in Sydney, buoyed by the government doling out A$12 billion ($9.9 billion) to lower-income earners. Prime Minister Kevin Rudd said without the payments, the economy would have shrunk about 0.2 percent.
Not so positive was a measure of corporate investment, which showed outlays on machinery and equipment tumbled by the most since the economy was last in a recession in 1991. Miners BHP Billiton Ltd. and Rio Tinto Group have cut spending, fired workers and closed mines in Australia as the worst global slump since the Great Depression curbs demand for commodities.
“Australia has been lucky so far, but that good fortune appears set to evaporate when examining the underlying data,” said Robert Cunneen, Sydney-based senior economist at AMP Capital Investors, which manages about $95 billion. “There was an ominous warning sign that business investment is in rapid decline.”
Exports tumbled 11.3 percent in April from March, the biggest drop since July 1997, on a decline in shipments of coal, iron ore and wheat, the statistics bureau said today.
Boom Ends
Rio Tinto has slashed its global spending by $5 billion to $4 billion this year and BHP shut its $2.2 billion Ravensthorpe nickel mine in Western Australia.
The West Australian state economy, home to a mining boom that helped drive the nation’s expansion over the past decade, contracted 2.3 percent in the first quarter from the previous three months, the first decline since the fourth quarter of 2000, yesterday’s report showed.
“Despite the positive GDP result, the data provide clear evidence that the global recession is hitting the Australian economy,” Treasurer Wayne Swan told reporters in Canberra. “The collapse in business investment” may threaten Australia for some time to come, he said.
Production in the mining industry fell 1.5 percent in the first quarter, manufacturing slipped 3.3 percent and construction dropped 3.3 percent.
As companies pared spending, imports fell 7 percent, the GDP report showed.
‘Long, Hard Slog’
The fall in imports “suggests that domestic demand remained very weak,” said Heather Ridout, chief executive of Australian Industry Group, an organization representing businesses. “We still face a long, hard slog to restore our economic health.”
Imports of intermediate goods, which include fuel and raw materials, plunged 10.3 percent in the quarter. Imports of capital goods, including trucks and machinery, slipped 7.1 percent.
“There is no guarantee that GDP won’t fall in future,” Rudd said yesterday. “Regrettably the unemployment rate will go up. The global recession is out there and unfolding. Difficulties and obstacles lie ahead.”
The jobless rate reached 5.7 percent in March, the highest level since 2004, before falling to 5.4 percent in April. The government said in last month’s budget unemployment will climb to 8.5 percent, which would be the worst reading since 1997, as the jobless queue swells to 1 million within two years.
“When the unemployment rate skyrockets to 8 percent by early next year or sooner, it will feel like a recession to many,” said Annette Beacher, a senior strategist at TD Securities Ltd. in Sydney.
Interest Rates
Reserve Bank of Australia Governor Glenn Stevens, who left the benchmark interest rate unchanged at a 49-year low of 3 percent this week, noted that factory usage will keeping falling as “companies postpone investment plans and seek to reduce leverage in an environment of tighter lending standards.”
Australia has scope to cut interest rates further if needed, he said on June 2.
Spending by businesses on machinery and equipment tumbled 9.6 percent in the first quarter, the biggest plunge since March 1991, the GDP report showed.
Non-residential construction fell 4.3 percent, the biggest drop since September 2003. Total business investment decreased 6.1 percent, the worst slump since the final quarter of 2000.
To make up for the shortfall in investment, the government last month unveiled a A$22 billion program of spending on roads, rails, ports, hospitals and schools.
“That really kicks in from about mid year,” Swan said yesterday. “It’s in that vital area of direct investment: in shovel-ready projects plus those over the longer term.”
“What the cash payments to consumers have done is filled the gap that was caused when the global economy contracted sharply and demand fell through the floor,” he said. “There is very significant stimulus still to come” from the infrastructure program.
To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net; Victoria Batchelor in Sydney at vbatchelor@bloomberg.net.
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