Oz economic growth outstrips forecasts

Australia's GDP shrank in the March quarter but the lights are back on now. Photo / Supplied

Australia's economy expanded more than economists forecast last quarter, driven by rising consumer spending and a rebound in exports.

Second-quarter gross domestic product advanced 1.2 per cent from the previous three months, when it fell a revised 0.9 per cent, a Bureau of Statistics report released in Sydney yesterday showed.

That compared with the median of 25 estimates in a Bloomberg News survey for a 1 per cent gain. GDP shrank in the first quarter after floods inundated mines and farmland in the nation's northeast, hurting exports.

Reserve Bank Governor Glenn Stevens has kept interest rates unchanged at 4.75 per cent for the past nine meetings as a mining-investment boom spurs the currency, hurting manufacturers including BlueScope Steel.

Australian employers added 41,400 jobs during the first seven months of the year, the weakest January-July period since 2003.

"The economy is likely to make a sharp rebound after the floods," said Besa Deda, chief economist at St George Bank in Sydney before the release.

Compared with a year earlier, the economy expanded 1.4 per cent in the second quarter, yesterday's report showed. Economists forecast a 0.7 per cent year-on-year expansion.

Household spending rose 1 per cent in the second quarter, adding 0.5 percentage point to GDP growth.

Machinery and equipment increased 4.9 per cent, adding 0.3 percentage point to growth, the report showed. Exports gained 2.6 per cent, adding 0.6 percentage point to the expansion.

Imports advanced 4.3 per cent in the three months through June, subtracting 1.1 percentage points.

Mining investment in the 12 months ending June 30 next year is projected to be A$82.1 billion ($105.2 billion), 45 per cent higher than in the 2010-11 fiscal year. Companies including BHP Billiton, the world's No1 mining company, are expanding output to meet demand from China and India. In contrast, consumers are curtailing spending as market worries in Europe and the US threaten global growth and the outlook for exporters like Australia.

Household spending accounts for 55 per cent of Australia's economy, and the central bank sought to restrain consumption with 175 basis points of rate increases from October 2009 to November. That was the most aggressive tightening for a developed economy coming out of the 2009 global recession.

The nation's household savings ratio declined to 10.5 per cent in the three months through June from 11.7 per cent in the first quarter, the report showed.

"Investment in the resources sector is picking up very strongly and some related service sectors are enjoying better-than-average conditions," Stevens said after keeping rates unchanged at a developed-world high yesterday. "In other sectors, cautious behaviour by households and the high level of the exchange rate are having a noticeable dampening effect."

BlueScope, Qantas Airways and Westpac Banking all announced plans last month to trim their workforces as Australian consumers retrench.

Australia's jobless rate rose to 5.1 per cent in July. A report today may show unemployment stayed at that level last month, according to the median estimate of 24 economists surveyed by Bloomberg.

The RBA has relied on the Australian dollar's strength to temper gains in consumer prices.

The local currency has risen about 16 per cent in the past year and reached US$1.1081 on July 27, the highest level since it was freely floated in 1983.

Clouding the outlook is concern the world's largest economy is slowing.

Employment in the US unexpectedly stagnated in August as employers became less confident in the strength of the recovery, and the jobless rate held at 9.1 per cent, according to a report.

- Bloomberg