Australia’s economy accelerates, backing RBA’s hawkish tone
While growth still remains below peak levels, the acceleration in the December quarter provides a more optimistic outlook
AUSTRALIA’S economy accelerated in the final three months of last year, supporting the Reserve Bank of Australia’s (RBA) cautious approach to further policy easing even after it cut interest rates last month.
Gross domestic product advanced 0.6 per cent, in line with economists’ estimate and double the pace recorded in the third quarter, official data showed on Wednesday (Mar 5). On a per capita basis, GDP rose 0.1 per cent following seven consecutive quarters of falls.
From a year earlier, the economy expanded by 1.3 per cent also matching forecasts.
“Modest growth was seen broadly across the economy,” Katherine Keenan, ABS head of national accounts, said. “Both public and private spending contributed to the growth, supported by a rise in exports of goods and services.”
The RBA cut its cash rate by 25 basis points to 4.1 per cent last month, citing growing confidence that inflation was headed back towards target. But it also expects economic growth to pick up this year to 2.4 per cent in December and that, together with “lingering tightness” in the labour market, raises upside risks on consumer prices.
The figures will be welcomed by Australia’s centre-left Labor government which is trailing the opposition Liberal-National coalition in polls ahead of an election due by mid-May.
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The RBA’s updated GDP forecasts are below the 20-year pre-pandemic average of nearly 3 per cent. Governor Michele Bullock put that down to a relatively slow pick up in consumer spending.
“Consumption is recovering but it’s not recovering as strongly as we initially thought it would,” she said after the Feb 18 rate decision. “We still have it recovering reasonably slowly, and that’s a big driver of GDP.”
While growth still remains below peak levels, the acceleration in the December quarter provides a more optimistic outlook. Australia’s business conditions have also been quite buoyant and retail sales strengthened in five of the six months to January.
“Household discretionary spending rose as people made the most of retail sales events and increased spending on hospitality as they enjoyed music and sporting events,” the ABS’s Keenan said.
Wednesday’s data also showed:
- The household savings ratio rose to 3.8 per cent from 3.6 per cent.
- Household spending climbed 0.4 per cent in the December quarter after a flat result in the prior three months.
- Government spending moderated to a 0.7 per cent rise following larger increases in previous quarters.
- Private investment in dwellings fell 0.4 per cent as price and labour pressures continued to weigh on the pipeline of work, the ABS said. BLOOMBERG
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