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Australia economy gathers pace on export boost

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Australia's economy gathered pace last quarter as a surge in exports and solid consumer spending offset a heavy drag from slumping business investment, adding to the case against another cut in interest rates.

[SYDNEY] Australia's economy gathered pace last quarter as a surge in exports and solid consumer spending offset a heavy drag from slumping business investment, adding to the case against another cut in interest rates.

The local dollar edged higher after the Australian Bureau of Statistics reported gross domestic product (GDP) expanded by 0.9 per cent in the third quarter, from the previous quarter when it rose just 0.3 per cent.

The value of all goods and services was up 2.5 per cent from a year earlier, topping forecasts of 2.4 per cent and ahead of that poster child of economic recovery - the United States. "This is not a bad outcome," said Reserve Bank of Australia (RBA) Governor Glenn Stevens, who happened to be giving a speech in Perth when the data was released.

The central bank again left rates at 2 per cent at its December policy meeting this week, citing signs activity was picking up, helped by past cuts and a low local currency.

Interbank futures are showing around a one-in-five chance of a cut when the RBA next meets in early February.

Overall, the Australian Bureau of Statistics reported the value of goods and services produced was worth A$1.6 trillion (S$1.76 trillion) in current dollars.

While the country has not suffered a full blown recession since 1991, it has been running below potential for some years.

The Liberal National government recently acknowledged the economy's speed limit might now be nearer 2.75 per cent than the 3.0-3.25 per cent previously considered normal.

The biggest drag is from mining investment which is in full retreat after a decade of madcap expansion. Business spending took 0.6 per centage points out of GDP growth, the fifth straight quarter of falls.

Neither was the government any help, as a pullback in its investment shaved 0.4 percentage points from growth.

Yet the hundreds of billions showered on mining is producing a massive increase in resource exports, much of it to China despite all the talk of slowdown there.

As a result, net exports added a huge 1.5 per centage points to growth in the quarter. Household spending added another 0.4 per centage points.

REUTERS