Australia's economy expands faster than expected; currency gains

[SYDNEY] Australia's economy expanded at a faster pace than economists forecast in the first three months of the year, supporting the central bank's decision Tuesday to keep rates steady. The local currency climbed.

Gross domestic product advanced 0.9 per cent from the final three months of 2014, when it rose 0.5 per cent, government data showed in Sydney Wednesday. That compared with the median of 31 estimates for a 0.7 per cent gain.

The report spans a period when Australia ended an 18-month pause in interest-rate cuts and the currency slid 7 per cent, improving companies' competitiveness and lifting consumers' spirits.

Even so, firms in Australia - an engine room of the decade-long global commodity boom - plan to cut investment in the next 12 months by the most on record, betting they can meet demand with existing capacity amid weak wage growth.

While this is "a good start to 2015, we expect growth to remain below trend this year," Felicity Emmett, a senior economist at Australia & New Zealand Banking Group Ltd who forecast a 0.9 per cent gain, said ahead of the release. "With the outlook for non-mining investment under a cloud and consumer spending growth likely to be damped by soft household income growth, it is unlikely" to fully offset weakness in mining investment and soft public demand, she said.

The local dollar traded at 78.06 US cents at 11.35am in Sydney from 77.73 cents before the release.

Compared with a year earlier, the economy expanded 2.3 per cent in the first quarter, the report showed. The median forecast of economists was for a 2.1 per cent rise.

EXPORTS JUMP

Exports jumped 5 per cent in the first quarter, adding 1.1 percentage points to GDP growth, the report showed. Household spending advanced 0.5 per cent last quarter, adding 0.3 point to the expansion, it showed. Non-dwelling construction fell 4.9 per cent, subtracting 0.4 percentage point from GDP growth.

The nation's household savings ratio fell to 8.3 per cent in the first quarter from a revised 8.8 per cent in the final three months of last year, it showed.

Australia's "economy has continued to grow, but at a rate somewhat below its longer-term average," central bank Governor Glenn Stevens said Tuesday after leaving rates at a record-low 2 per cent.

"Household spending has improved, including a large rise in dwelling construction, and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors."

BLOOMBERG