Australia’s economy expanded faster than analysts forecast last quarter on rising household spending and lower savings, as the central bank’s bid to spur consumption-led growth bears fruit.
Fourth-quarter gross domestic product advanced 0.8 percent from the previous three months, exceeding the median of 28 estimates in a Bloomberg survey for a 0.7 percent gain. The savings rate fell to 9.7 percent in the final three months of 2013, the first time it has dropped below 10 percent since 2010.
Policy makers are trying to maneuver the economy through the fading of a resource-investment boom that helped the nation avoid recession during the global financial crisis. The Reserve Bank of Australia cut borrowing costs by 2.25 percentage points from late 2011 through August last year to a record-low 2.5 percent, helping drive up house prices and building approvals.
“The clearest message from these national accounts is that the rebalancing act is under way, and that will be a great comfort for the RBA,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney and a former RBA economist who accurately predicted today’s result. “Rate cuts are off the table. Indeed, the evidence is starting to build that interest rates may have to rise before the end of the year.”
The local dollar traded at 89.50 U.S. cents at 12:56 p.m. in Sydney from 89.57 cents before the release. Traders are pricing in a 7 percent chance of a quarter-point rate increase in the cash rate in August, double the bet yesterday.
Compared with a year earlier, the economy expanded 2.8 percent in the fourth quarter, today’s report showed. The median forecast of economists was for a 2.5 percent rise.
Household spending advanced 0.8 percent in the fourth quarter, adding 0.4 percentage point to GDP growth, today’s report showed. Exports advanced 2.4 percent last quarter, adding 0.5 point, it showed. Machinery and equipment fell 8.8 percent, subtracting 0.4 percent from GDP growth.
The nation’s household savings ratio declined to 9.7 percent in the three months through December from a revised 10.6 percent in the third quarter, today’s report showed.
The central bank has cut rates to a record low to support the economy as a mining boom moves from the employment-intensive investment phase to one of increased supply and higher exports.
China, Australia’s biggest trading partner, retained a target for 7.5 percent economic growth in 2014, according to a work report that Premier Li Keqiang will deliver to the annual meeting of the legislature today in Beijing.
“The Australian economy hasn’t fallen in a heap since mining investment peaked,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “Further gains are likely as the monetary stimulus continues to filter through.”
Australian building approvals jumped 6.8 percent in January from December, and 34.6 percent from a year earlier, government data showed yesterday.
Australia’s currency averaged about $1 in the past three years, compared with around 72 cents in the prior two decades, spurred by the resource investment boom and near-zero interest rates in the U.S. and Japan. That strength hurt manufacturing.
About 50,000 jobs in the auto and parts industry are in jeopardy after Toyota Motor Corp. last month followed General Motors Co. and Ford Motor Co. in announcing plans to quit manufacturing in the country.
“The Coalition’s plan to reduce regulation and abolish taxes will help smooth the transition in the economy away from resource investment and toward growth in the non-mining sectors,” Treasurer Joe Hockey said in a statement today. “That will be key to boosting annual growth to more than 3 percent, which is what’s needed to bring unemployment down.”
The nation’s unemployment rate climbed to a 10-year high of 6 percent in January. February jobs data is due on March 13.
“Some indicators of business conditions and confidence have shown improvement and exports are rising,” central bank Governor Glenn Stevens said in a statement accompanying yesterday’s decision to leave rates unchanged. “At the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative.”