Strong aussie dollar puts damper on growth

SYDNEY - Australia's economy expanded at half the pace economists forecast in the third quarter as construction fell and a stronger currency contributed to the biggest drop in exports in more than seven years.

Gross domestic product advanced 0.2 per cent from the second quarter, the worst performance since a contraction at the end of 2008, the Bureau of Statistics said in Sydney. The median forecast in a Bloomberg survey of 21 economists was for a 0.4 per cent gain from the previous period, when GDP rose 1.1 per cent.

Australia's dollar slid to a 10-week low against its US counterpart after yesterday's release, paring an advance for the year that's eroded export competitiveness.

The slowing indicates little immediate need for the Reserve Bank of Australia to add to the seven rate increases since October 2009 that have hurt business confidence and reined in an expansion in housing.

"Consumers and business are holding on to the cash until the economic recovery gains traction," said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. "The double-digit household savings ratio and weak private-sector investment outside the mining sector adds weight to this."

Exports fell 2.4 per cent in the quarter, the steepest drop since the second quarter of 2003, subtracting 0.6 percentage point from GDP, yesterday's report showed. Construction declined 0.9 per cent from the prior quarter.

Household spending increased 0.6 per cent, adding 0.3 percentage point to GDP growth, the report showed.

The economy grew 2.7 per cent from a year earlier, the report showed. Economists had forecast a 3.4 per cent expansion.

A private report yesterday showed Australian manufacturing contracted in November for a third month as the nation's surging currency eroded demand for exports and higher borrowing costs curbed consumer spending.

The manufacturing index fell to 47.6 from 49.4 in October, the Australian Industry Group and PricewaterhouseCoopers said in a survey released in Canberra yesterday. A number below 50 indicates contraction.

- Bloomberg