Australia economy beats all forecasts to reach 3% growth

Thursday, 3 March 2016 00:00 - - {{hitsCtrl.values.hits}}

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Reuters (Sydney): Australia’s economy outpaced all forecasts to grow at the fastest pace in almost two years last quarter, as strength in consumer and government spending offset the heavy drag from a global mining slump.

The upbeat report sent the local S&P ASX 200 index up 1.5% to an eight-day high, while the local dollar traded half a US cent higher, as investors reined back expectations of further cuts in interest rates, while providing a political boost to the coalition government of Malcolm Turnbull.

Gross Domestic Product (GDP) expanded by 0.6% in the fourth quarter, from the previous quarter when it rose an upwardly revised 1.1%.

That propelled growth for the year to 3%, well above the 2.5% that had been expected by both analysts and the Reserve Bank of Australia (RBA).

“Given Australia is going through the biggest mining pullback in our lifetimes, this is a pretty good outcome,” said David de Garis, a senior economist at National Australia Bank.

“Our baseline is that the RBA is done cutting rates, and these numbers only support that view.”

The central bank has held rates steady since May last year and just this week skipped a chance to ease, saying it saw “reasonable prospects” for growth.

RBA Governor Glenn Stevens did say there would be scope for further easing given that inflation looked set to remain low, and investors are still wagering he will have to move eventually given headwinds facing the global economy.

However, the timing has been pushed out with interbank futures now implying a 45% chance of a cut by May, compared to 60% before the data.

The RBA has made it clear it would prefer any further stimulus to come through a lower Australian dollar, but is being thwarted by the drastic easing of central banks elsewhere.

The Bank of Japan only recently joined the club of negative interest rates and the European Central Bank is widely expected to cut further below zero next week.

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