Australia economy grows at fastest pace in four years

Bloomberg

Australia’s economy expanded at the fastest annual pace in four years, driven by a surge in public investment to build roads and railways and continued strength in resource exports.
Gross domestic product rose 0.5% in the second quarter from the previous three months, when it grew by a downward revised 1%; economists estimated 0.6% gain. The economy expanded 3.3% from a year earlier, matching estimates and the most since the second quarter of 2012. Expansion was driven by a 1.9% rise in government spending and 15.5% increase in public investment, adding 1 percentage point to quarterly growth
The report confirms Australia’s 25th recession-free year and is a fillip for Prime Minister Malcolm Turnbull in a parliament where his side holds a razor-thin majority; it’s also a welcome entry-point for incoming central bank Governor Philip Lowe as he tries to combat weak inflation. Still, Wednesday’s data is only a rear-view snapshot of Australia’s economy, in a period when iron ore gains and the jobless rate largely held their ground.
“The government has come to
the rescue,” said Paul Dales, chief Australia and New Zealand economist at Capital Economics Ltd. “Things would be weaker if it wasn’t for this secret fiscal stimulus.”
The economy has been bolstered by a surge in government spending, particularly at the state and local government levels, as investment by industries outside mining started to show green shoots last quarter. This suggests the Reserve Bank of Australia’s efforts to steer a handover to non-mining sources of growth could be working after years of easy policy and a 25 percent depreciation in the currency from its mining boom peak.
Wednesday’s data saw the economy’s annual expansion exceeded its 30-year average of 3.2 percent. It also showed: The household savings ratio held at a revised 8% Terms of trade, or export prices relative to import prices, rose 2.3% QoQ Household spending rose 0.4%, adding 0.2 percentage points to growth
The currency was little changed after the report, buying 76.70 U.S. cents at 12:25 p.m. compared with 76.68 cents before the data.
The central bank last month lowered the benchmark for the second time since May to a record-low 1.5 percent as the disinflation that’s engulfed much of the developed world spreads Down Under.
Fed Uncertainty
Australia’s transition is relying on industries like tourism and education that are among the most sensitive to the currency’s fluctuations. Uncertainty over the U.S. Federal Reserve’s plans to tighten has propped up the Aussie against the dollar, as well as zero and negative rates and vast bond-buying programs in Europe and Japan that make even Australia’s record-low rate attractive. The Aussie is up more than 10 percent since mid-January. Australia’s underemployment rate is also running high, as a surge in part-time workers — many of whom want more hours — flatters the jobless level. RBA Governor Glenn Stevens, in his final policy statement after holding the benchmark rate steady Tuesday, signaled some doubts on the labor market.