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Australia exports, govt spending boost economic fortunes

[SYDNEY] Australia's current account deficit widened sharply last quarter as prices for key commodity exports came off the boil, yet the country still managed to ship more goods overall in an unexpected boost to economic growth.

Other data out on Tuesday also showed government spending proved surprisingly upbeat in the June quarter, tilting the risks to the upside for growth.

"Exports came in on the higher side, and government spending was also very strong in the quarter," said Su Lin Ong, chief economist at RBC Capital Markets.

"The risk to GDP growth is now on the upside. We will get an upward revision to where everyone is on GDP."

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The gross domestic product (GDP) report is due on Wednesday and had been forecast to show growth rebounded by around 0.8 per cent in the second quarter, after a weather-beaten 0.3 per cent rise at the start of the year.

Growth for the year had been seen edging up only a tick to 1.8 per cent, but analysts suspected that would be topped now.

The Reserve Bank of Australia (RBA) remains confident economic activity will reach around three per cent by early next year, one reason it is likely to keep interest rates steady at its September policy meeting later on Tuesday.

Rates have been at an all-time low of 1.5 per cent since August last year and look like staying there for months yet.

Most analysts polled by Reuters expect no change until late 2018 while markets imply virtually no chance of a move by the end of this year, in either direction.

Helping activity is consumer spending, which account for around 57 per cent of GDP.

Strength in retail and car sales during the quarter suggest consumption made a substantial contribution to overall activity.

Indeed, industry figures out on Tuesday showed car dealers notched up a fourth month of record sales in August.

Official data from the Australian Bureau of Statistics showed the country's current account deficit widened to A$9.6 billion (S$10.36 billion), from A$4.7 billion in the first quarter, mostly due to a pullback in commodity prices.

Australia's terms of trade, the ratio of export to import prices, duly fell 6 per cent in the quarter.

Yet the volume of exports sold rebounded in the quarter to add 0.3 percentage points to GDP growth, when most analysts had expected a small subtraction.

Also helping was a robust rise in government spending, with states splashing out on infrastructure from roads to rail.

Analysts at Westpac estimated this alone had added half a percentage point to growth in the quarter, and revised up their GDP forecast to one per cent growth quarter-on-quarter and up two per cent on-year.

The outlook for exports is also upbeat as an acceleration in global factory output and unexpectedly brisk demand from China has recently boosted prices for a range of commodities.

Copper hit its highest in three years this week, while steel prices in China reached levels not seen since 2013 - supporting iron ore in the process.

The RBA index of commodity prices, which mirrors the country's export mix, climbed one per cent in August to be up 16.6 per cent on the same month last year. All of which is a boon to the country's hard-pressed miners.

REUTERS