Australia's economy grows the most in four years

Australia's economy grew strongly in the first quarter. It expanded 3.1 per cent from a year earlier. GDP rose 1.1 per cent from three months earlier.
Australia's economy grew strongly in the first quarter. It expanded 3.1 per cent from a year earlier. GDP rose 1.1 per cent from three months earlier.PHOTO: AGENCE FRANCE-PRESSE

SYDNEY • Australia's economy grew at the fastest pace in four years last quarter - underpinned by an export bonanza - even as diminishing inflation pressures spurred the central bank to cut interest rates last month.

Gross domestic product rose 1.1 per cent from three months earlier, when it gained a revised 0.7 per cent. From a year earlier, the economy expanded 3.1 per cent. Expansion was driven by a 4.4 per cent jump in exports; and a 0.7 per cent increase in household spending.

The report is a fillip for Prime Minister Malcolm Turnbull, who is battling for another term ahead of what is shaping up to be a hard-fought July election.

It is also a snapshot of Australia's economy in the rear-view mirror, a period when the iron ore price jumped amid resurgent demand in China, and unemployment dropped to a 21/2 year low.

The currency jumped half a US cent and rate-cut bets were pared.

The central bank last month ended a one-year policy pause and lowered its benchmark to a record-low 1.75 per cent as disinflation arrived Down Under. The economy's recent strength suggests a follow-up cut is less likely.

"These numbers will validate a bit of caution on the part of the RBA not to ease too aggressively," said Mr Richard Yetsenga, acting chief economist at Australia and New Zealand Banking Group. While the RBA will cut interest rates further, it will not happen until August, he said.

The local dollar advanced after the report, buying 72.53 US cents in Sydney. The Aussie was at 99.87 Singapore cents.

Yesterday's data saw the economy's annual expansion approaching its 30-year average of 3.2 per cent. Weaker trends in population growth and investment suggest a resurgence in productivity will be the only way to counter that, according to National Australia Bank's chief economist Alan Oster.

As the mining boom unwinds, "if nothing else fills the gap, Australia may experience its worst decade of national income growth, and potentially a deterioration in living standards, in nearly half a century", said Mr Oster.

Australia is managing a transition away from mining towards industries like tourism and education that have been buoyed by a weaker currency and record-low wage growth. Treasurer Scott Morrison said: "While the numbers are welcome, we are very conscious of the fragilities that exist in these numbers and our economic plan is designed to address those fragilities. The most significant of those is the need to boost earnings."

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A version of this article appeared in the print edition of The Straits Times on June 02, 2016, with the headline 'Australia's economy grows the most in four years'. Print Edition | Subscribe