GDP Grows in December Quarter

March 14th, 2014

After a long period of careful economic management following the global financial crisis and resource-investment downturn, the Australian economy is now performing better than expected. ; With interest rates cut by 2.25 percent from late 2011 to their current record low of 2.5 percent, some analysts are forecasting a position reversal by the Reserve Bank later in the year. ; ;

According to Paul Bloxham, chief Australia economist at HSBC Holdings, “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... 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 0.8 percent rise in household spending added 0.4 point to GDP growth, with exports rising by 2.4 percent in the quarter, adding 0.5 point. ; Spending on machinery and equipment dropped by 8.8 percent for the quarter, subtracting 0.4 point from GDP growth. ; A drop in household savings is also having a positive effect on GDP growth, with the nation's household savings ratio dropping from 10.6 percent to 9.7 percent in the December quarter. ;

In other good news for the Australian economy, China retained a target level of 7.5 percent economic growth for 2014. ; ; According to a report by the State Information Center (SIC), China's exports will grow about 8.1 percent year on year and imports about 8.5 percent year on year in the quarter. ; As Australia's biggest trading partner, strong performance by China is integral to local economic growth. ;

While the overall tone for the year ahead is positive, there are still challenges to meet. ; In a statement accompanying the recent decision to leave interest rates unchanged at 2.5 percent, Central Bank Governor Glenn Stevens said, “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.” ;