Australia Economy Grew More Than Forecast

By Michael Heath - Dec 7, 2011 8:45 AM GMT+0700

Australia’s economy grew faster than estimated last quarter on consumer spending and business investment, spurring the local currency as investors pared bets on the pace of interest-rate cuts next year.

Gross domestic product advanced 1 percent in the three months through September after a revised 1.4 percent expansion the previous quarter that was the fastest since the first quarter of 2007, a Bureau of Statistics report released in Sydney today showed. The result compared with the median of 24 estimates in a Bloomberg News survey for a 0.8 percent gain.

The report reflects an economy the central bank predicted would accelerate before Europe’s sovereign-debt crisis prompted Reserve Bank Governor Glenn Stevens to lower rates at consecutive meetings for the first time since 2009. After the data, interbank cash futures showed investors reduced the odds for a 50-basis-point rate reduction at the RBA’s Feb. 7 meeting.

“There are still very strong drivers of growth from capital expenditure, and the household sector is still doing well,” Tony Morriss, head of interest-rate research in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ), said in an interview.

The Australian dollar rose after the report, buying $1.0266 at 12:43 p.m. in Sydney from $1.0243 before the data.

Compared with a year earlier, the economy expanded 2.5 percent in the third quarter, today’s report showed. Economists forecast a 1.9 percent year-over-year gain.

Interest-Rate Bets

Yields on interbank cash-rate futures for the next five months climbed, with the April contract gaining 8 basis points to 3.35 percent, the highest level in almost a month.

Household spending rose 1.2 percent in the third quarter, adding 0.7 percentage point to GDP growth, today’s report showed. Non-dwelling construction jumped 24.4 percent, adding 1.5 points, the report showed. Machinery and equipment advanced 6.4 percent, contributing 0.4 point to the expansion.

“The economy is certainly not weak,” said Adam Carr, a senior economist in Sydney at ICAP Australia, Ltd., a unit of the world’s biggest interdealer broker.

China is Australia’s biggest trading partner and its demand for iron ore, coal and energy drove the nation’s terms of trade -- a measure of export prices relative to import prices -- to a record this year.

Mining increased 3.7 percent, adding 0.3 point, today’s report showed.

Mining Boom

Resource projects valued at A$456 billion ($468 billion), driven by companies such as BHP Billiton Ltd. (BHP), have cushioned a slump in manufacturing and services hit by a record currency and subdued consumer spending.

“The strong investment outcomes are further evidence of the massive pipeline of planned investment in Australia,” Treasurer Wayne Swan said in a statement after the data were released.

The report also showed government spending dropped 1.2 percent, subtracting 0.2 point from GDP growth. Imports rose 4.3 percent, subtracting 1 point.

The nation’s household savings ratio rose to 10.1 percent in the three months through September from 9.1 percent in the second quarter, today’s report showed.

“The Australian economy certainly recorded healthy growth,” said Savanth Sebastian, a Sydney-based economist at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “However, the focus for the Reserve Bank is likely to be the uncertain global economic environment and the downside risks emanating from Europe.”

RBA Eases

Stevens, in yesterday’s statement announcing his decision to lower the benchmark rate a quarter percentage point to 4.25 percent, warned of rising risks to global growth.

“The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead,” he said.

Australia’s jobless rate fell to 5.2 percent in October as employment gained by 10,100 workers. Government data tomorrow may show unemployment stayed at that level in November, with the number of workers increasing by 10,000, according to the median estimate of 24 economists surveyed by Bloomberg.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net