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Australia economy finds spark of life in consumer spending

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Australia's economy grew moderately last quarter as a strong trade performance and the largest rise in consumer spending in almost three years helped offset softness elsewhere.

[SYDNEY] Australia's economy grew moderately last quarter as a strong trade performance and the largest rise in consumer spending in almost three years helped offset softness elsewhere.

Wednesday's data showed gross domestic product (GDP) expanded by 0.5 per cent in the fourth quarter, compared to the previous quarter when it rose by 0.4 per cent.

"The good news is we've now completed 23 years of continuous growth," said Michael Blythe, chief economist at Commonwealth Bank.

"The bad news is we're still running below trend, which will keep upward pressure on the unemployment rate and the RBA (Reserve Bank of Australia) on rate-cut watch."

The result matched market forecasts, which was a relief to many analysts who had feared the risks were for a weaker outcome and lifted the local dollar a quarter of a cent.

The economy grew 2.5 per cent for all of 2014, a result that actually topped the United States but remained well short of the 3.25 per cent that is considered its ideal running pace.

After trimming interest rates to a record low of 2.25 per cent in February, the RBA skipped a further move this week but left the door wide open for an easing in coming months.

Interbank futures imply a better than 50 per cent chance of a cut in April and are fully priced for a move in May.

There were some hopeful signs that low rates were feeding through to consumption with household spending adding 0.5 percentage points to GDP in the fourth quarter, the best outcome since early 2012.

Household spending power has found support from falling petrol prices, rising home values and a large stock of savings, which is helping offset sluggish growth in wages.

THE INCOME DEFICIT

A decade-long expansion in mining investment is also fuelling a sustained increase in the volume of resources shipped, with China still a huge buyer.

As a result, net exports accounted for no less than four fifths of all the growth seen last year.

Overall, the Australian Bureau of Statistics reported the value of goods and services produced in Australia was worth A$1.6 trillion (US$1.25 trillion) in current dollars, or about A$68,000 for each of Australia's 23.5 million people.

Weighing on growth has been steep falls in prices for many of Australia's major export commodities. What had been a river of money has dried up, hurting company profits, wages and tax receipts.

The baleful effect was all too apparent in measures of national income and nominal GDP, which attempt to gauge the amount of spending in the economy.

One of the most closely watched is real net national disposable income which rose by just 0.5 per cent in the year, a level more usually associated with recessions.

Likewise, GDP measured in current prices grew an historically slim 1.7 per cent for the year, a headache for the Liberal National government of Tony Abbott since it is nominal growth that drives the tax take.

Stuck with an intractable budget deficit, Mr Abbott's ambitious infrastructure plans have faltered with capital spending falling for four quarters in a row.

REUTERS