Australia’s economy unexpectedly accelerated last quarter, providing a tailwind for the winner of this week’s election and sending the nation’s currency higher.
Second-quarter gross domestic product advanced 0.6 percent from the previous three months, when it rose a revised 0.5 percent, a Bureau of Statistics report released in Sydney today showed. The result compared with the median of 31 estimates in a Bloomberg survey for a 0.5 percent gain. From a year earlier, the economy expanded 2.6 percent, also exceeding estimates.
Liberal-National coalition leader Tony Abbott is on track to defeat ruling Labor party opponent Kevin Rudd on Sept. 7, polls show, and will inherit record-low interest rates designed to support an economy in which unemployment is rising. The Treasury last month forecast wider budget deficits in the next three years and cut its growth estimate for this fiscal year.
“The result is a little bit better than expected and will add to the view from the data that we’ve been getting here and offshore that the Reserve Bank’s likely done,” said Joshua Williamson, a senior economist at Citigroup Inc. in Sydney. “The economy is motoring along at a third-gear pace, rather than fourth gear or flat out. But it’s a respectable growth rate nonetheless.”
The local dollar traded at 90.94 U.S. cents at 12:31 p.m. in Sydney, from 90.50 cents before the release. Traders pared bets that the central bank will lower borrowing costs by the end of the year from about 50-50 to 40 percent after the release, according to swaps data compiled by Bloomberg.
The Reserve Bank of Australia cut borrowing costs by 2.25 percentage points since late 2011 to 2.5 percent as it tries to spur employment-intensive industries like residential construction and avoid a growth gap as mining investment wanes.
“The Reserve Bank has been relied upon, or pressured, to do the heavy lifting in the economy for the last few years,” Shadow Finance Minister Andrew Robb told Bloomberg television yesterday. It doesn’t have “a lot of room left if there was some other unforeseen event in the world economy to make a difference.”
Today’s report showed household spending climbed 0.4 percent in the second quarter, adding 0.2 percentage point to GDP growth. The nation’s household savings ratio climbed to 10.8 percent in the second quarter from 10.5 percent in the prior three months, today’s report showed.
Business leaders and consumers have been more restrained under Labor rule, which encompassed the collapse of Lehman Brothers Holdings Inc. and resulting global recession. Australia was alone among major developed economies in avoiding contraction as Rudd spent A$42 billion ($38 billion) stimulating the economy with cash handouts, building programs and homebuyer incentives.
Westpac Banking Corp. and Melbourne Institute’s survey of consumer confidence has averaged 101.5 points under Labor versus 110.7 in the prior six years. National Australia Bank Ltd.’s business confidence index averaged 0.5 point in the almost six years of Labor rule versus about 10.3 points over the prior six years. A level of 100 divides optimists and pessimists in Westpac’s survey, while zero is the dividing line in NAB’s index.
Australia has avoided consecutive quarters of contraction - - the local definition of a recession -- for 22 years. The Treasury last month forecast unemployment will rise to a more than decade-high 6.25 percent.
“If we are re-elected on Saturday, what we will do is track back to surplus,” Rudd told Australian Broadcasting Corp. television’s Q&A program this week. “If you were to do it quicker than that, I really fear if Mr. Abbott implements his A$70 billion worth of cuts, then you can run a risk of running the economy into recession.”
The coalition has said it would cut the public service by at least 12,000 positions and proposes an audit of government services. The biggest employment gain under Labor has been the government-heavy health and social assistance industry, which added 303,000 workers, according to Bloomberg calculations based on statistics bureau data. In the coalition’s last six years, the biggest employment increase was the 271,000 positions added in the privately driven construction industry.
Should Abbott win a three-year term at the Sept. 7 election, he may find that gloom lifts from 2015 as a surge in gas exports replenishes Australia’s coffers and propels the nation toward becoming the biggest shipper of the fuel.
Ten liquefied natural gas projects across the nation -- three of which are operating and seven under construction -- will boost budget revenues by A$11 billion a year from 2015 to 2025, according to estimates compiled by McKinsey & Co. Inc. The projects will add 2.6 percent to Australia’s gross domestic product, or A$5,500 per household each year and support 180,000 jobs, the New York-based consultancy forecast.
Joe Hockey, the frontrunner to become Australia’s next Treasurer, said the coalition wouldn’t embark on an austerity drive and expressed economic optimism that contrasts with the governing Labor party, which has warned the China-led mining investment boom is over.
“The Australian economy is on the threshold of its greatest ever era,” Hockey, 48, said in an interview in Sydney today. “There’ll be no austerity. People just expect us to be careful with their money. You’ve got to look after taxpayers’ money as you’d look after your own.”
Elsewhere in the region, South Korea reported an increase in its foreign-exchange reserves for August, while a China purchasing managers’ index showed services expanded at a faster pace last month.
Data due today in Europe may confirm the euro area’s economy emerged from a record-long recession in the second quarter, while Poland’s central bank is forecast by all economists in a Bloomberg survey to keep interest rates unchanged when it announces its decision. The U.S. Commerce Department may say the trade deficit widened in July, a separate survey showed.
The lack of wealth flowing from a mining boom to Australia’s eastern seaboard and impact of the currency’s sustained strength on manufacturers like Ford Motor Co. has led to rising job insecurity and hurt the government’s standing. Abbott sought to tap this with pledges to return to the type of policies run during the “Golden Age” of former Prime Minister John Howard’s 1996 to 2007 government.
The currency’s 12 percent drop last quarter may have come too late for Rudd. The opposition led Labor 54 percent to 46 percent on a two-party preferred basis, a Sept. 2 Newspoll published in the Australian newspaper showed. The coalition is in a “healthy condition” to win the election, Robb said.