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Economic growth in Australia slowed in 3Q
Wed, Dec 16 2009, 04:36 GMT
by ecPulse.com analysis team
The Australian economy expanded in the third quarter of this year less than expected as exports, one of the main pillars for economic growth, declined and the effect of the government’s stimulus package started to wane. After the release of today’s report, the Australian dollar declined sharply to the 0.9005 levels.
Australia’s gross domestic product expanded 0.2% in the third quarter from the previous three months when it grew 0.6%, and the reading came less than analyst’s expectations referring to an expansion by 0.4%.
The nation’s GDP expanded an annual 0.5% in the three months ended September following an expansion by 0.6%, and it came less than the expected 0.7%.
However, economic growth in Australia slowed as exports declined 2.3%, and the Australian dollar continued to rise against its American counterpart corroding corporate earnings, worth mentioning that the Australian dollar climbed 29% against the green currency this year.
The central bank said in August, exports revenue will decline 20% this year from its 2008 peak, amid forecasts of falling global demand after withdrawing stimulus measures. Still the government didn’t respond to the surging local currency, which is making Australian products lose a competitive advantage.
On the other hand, consumer spending rose 0.7% in the third quarter adding 0.4 percentage points to the nation’s GDP, as deteriorations in the Australian labor market eased and unemployment rate declined to 5.7% from 5.8%, having employers adding 99,500 workers between September and November 30, the biggest hiring surge in three years. Stable income levels and the government’s cash handouts helped consumer spending to rise in the last quarter.
Increasing consumer spending in Australia helped the economy to avoid technical recession expanding 0.4% in the first quarter then economic growth accelerated in the three months ending June to 0.6%, backed by the government’s cash handouts to households, which boosted domestic demand and retails sales, in addition to recovering exports.
Moreover, government spending inclined 0.7% last quarter as the government increased spending on infrastructure projects, ports, schools and hospitals. The Australian government allocated A$22 billion as cash handouts to households, in addition to A$20 billion to be spent on the infrastructure and other projects.
Cheerful fundamentals witnessed in Australia during the last period, encouraged monetary policy makers to raise interest rates three straight months from a half century low at 3.00%. The Reserve Bank of Australia raised borrowing costs by 25 basis points in December to reach 3.75%, after two similar decisions in the previous two months responding to the rebounding economy.
Yet, the RBA said in the minutes concerning December 1 meeting, that monetary policy will be adjusted, in case economic conditions continued to improve. The bank added that business confidence rose to the highest in seven years in November and companies are planning to increase capital spending and investments more than preliminary forecasts.
After all, the Australian economy expanded three straight quarters, thanks to the governments stimulus spending and the rising consumer spending, which supported economic recovery from the worst recession since World War II.
The Australian dollar declined against the U.S dollar and other major currencies after the release of today’s report. The AUD declined to be trading around 0.9000 against the American dollar at 2:25 GMT, while it is trading around 1.6148 against the euro and trading around 80.68 against the Japanese yen.