Australia's resource-fuelled economy outpaced all expectations last quarter as households and businesses went on a spending spree, boosting the local dollar and lessening the urgency for further aggressive cuts in interest rates. Gross domestic product (GDP) rose 1.3 percent in the first quarter, more than double the 0.5 percent increase forecast. Growth was a robust 4.3 percent higher compared with the first quarter of 2011, the fastest pace in more than four years.
Concerns about growth globally, and particularly in China, will continue to haunt the outlook but analysts were cheered that the economy had more momentum than anyone had supposed. "Rumours of the economy's death have been totally exaggerated," said Michael Blythe, chief economist at Commonwealth Bank of Australia. "It does tell you we had a decent amount of momentum in the run up to the latest round of the European woes, and it's not a bad place to be in."
The Australian dollar jumped two-thirds of a cent on the upbeat data to $0.9844. Interbank futures slid as the market scaled back expectations for how far and how fast interest rates would be cut from here. Only the day before, the Reserve Bank of Australia (RBA) had cut rates for a second month running, in part because domestic growth has disappointed while the global outlook turned ever darker.
The data were eagerly seized on by the Labour government, which is trailing badly in the polls as it pushes ahead with unpopular fiscal tightening and carbon tax plans. "Today's National Accounts paint an extraordinary picture of exceptional growth, and showcase the rock-solid economic fundamentals which put our economy in a league of its own," crowed Treasurer Wayne Swan. Australia's annual growth of 4.3 percent compared with 1.7 percent in the United States, zero growth in the European Union and a fall of 0.1 percent in Britain.
In all, GDP for the 12 months to March reached a real A$1.35 trillion ($1.32 trillion), or some A$64,000 for each of Australia's 22.8 million people. That compared to per capita GDP in the United States of around $43,000. Australia was one of the very few advanced economies to sail through the global financial crisis without sliding into recession, largely propped up by Chinese-led demand for its coal, iron ore and other resources. While the Chinese economy has since slowed markedly, miners continue to invest heavily in the belief demand from its urbanising millions will run for years yet. Wednesday's data showed spending on engineering projects such as mines and liquefied natural gas jumped 20 percent in the first quarter to be up a heady 53 percent on the year. That alone added 1.1 percentage points to GDP growth in the quarter.
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