Australia’s Growth Quickens as New Mines Drive Export Surge

Updated on
Joe Hockey
Australian Treasurer Joe Hockey. Photographer: Mark Graham/Bloomberg

Australia grew faster than forecast last quarter as newly built mines boosted exports, validating the central bank’s decision to keep interest rates steady.

The currency gained after data Wednesday showed gross domestic product advanced 0.9 percent from the final three months of 2014, above the median forecast for a 0.7 percent gain. The economy was spurred by a 5 percent jump in exports in the first quarter even as commodity prices fell.

The report spans a period when Australia ended an 18-month pause in interest-rate cuts and the currency slid 7 percent, improving companies’ competitiveness and lifting consumers’ spirits. Even so, firms in Australia -- an engine room of the decade-long global commodity boom -- plan to cut investment in the next 12 months by the most on record, betting they can meet demand with existing capacity amid weak wage growth.

“It’s a mixed result, with a good headline masking some disappointing details,” said Keiran Davies, Barclays Plc’s Sydney-based chief economist who forecast the 0.9 percent rise. “Mining exports are still strong and are compensating for the fall in mining investment but in the non-mining economy the activity was weaker, and that will be a disappointment for the RBA.”

Compared with a year earlier, the economy expanded 2.3 percent in the first quarter, faster than the median forecast for a 2.1 percent rise but below the economy’s 30-year average rate of 3.3 percent.

Market Reaction

The local dollar traded at 77.95 U.S. cents at 5:27 p.m. in Sydney from 77.73 cents before the release. Australian stocks ended lower with the S&P/ASX 200 index falling 0.9 percent.

Exports added 1.1 percentage points to GDP growth, the report showed. Household spending advanced 0.5 percent last quarter, adding 0.3 point to the expansion, it showed. Non-dwelling construction fell 4.9 percent, subtracting 0.4 percentage point from the rate of growth.

Treasurer Joe Hockey hailed the result, saying the quarterly export growth was the strongest in 15 years.

“More and more resource projects are hitting full production, resulting in record-breaking mining exports,” he said Wednesday in Canberra. “Today’s national accounts show the deep resilience of the Australian economy.”

The nation’s household savings ratio fell to 8.3 percent in the first quarter, its lowest level since the global financial crisis. The terms of trade, or export prices compared to import prices, fell 2.9 percent from the fourth quarter to the lowest level since 2009.

Australia’s “economy has continued to grow, but at a rate somewhat below its longer-term average,” central bank Governor Glenn Stevens said Tuesday after leaving rates at a record-low 2 percent. “Household spending has improved, including a large rise in dwelling construction, and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors.”

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