Australia's economy grew slower than forecast last quarter

SYDNEY (Bloomberg) - Australia's economy expanded slower than economists forecast in the final three months of last year, underscoring the central bank's decision to renew its policy easing cycle.

Fourth-quarter gross domestic product advanced 0.5 per cent from the previous three months, when it rose a revised 0.4 per cent, a Bureau of Statistics report released on Wednesday showed. The result compared with the median of 28 estimates in a Bloomberg News survey for a 0.6 per cent gain.

The Reserve Bank of Australia kept its key interest rate unchanged at a record low Tuesday, after cutting in February, as it seeks to encourage spending by consumers and companies to offset falling mining investment. Australian firms, outside of property, have opted to pay dividends or salt away cash rather than invest in new projects.

"The economy remains soft, with falling business investment driven by the wind back in mining investment," Felicity Emmett, a senior economist at Australia & New Zealand Banking Group Ltd. who predicted a 0.4 per cent gain, said in a research report before the release. "Growth looks set to come in below trend for most of this year."

The Aussie dollar traded at 78.31 U.S. cents at 11:41 a.m. in Sydney from 78.15 cents before the release.

Compared with a year earlier, the economy expanded 2.5 per cent in the fourth quarter, matching the median forecast of economists.

Australia is losing its developed-world-beating status as the mining investment boom that powered it through the global financial crisis falls away.

"Growth is continuing at a below-trend pace, with domestic demand growth overall quite weak," RBA Governor Glenn Stevens said Tuesday in a statement after keeping the cash rate at 2.25 per cent. "The economy is likely to be operating with a degree of spare capacity for some time yet."

The currency declined 6.5 per cent in the final three months of last year and has fallen a further 4 per cent in 2015. The price of Australia's key export, iron ore, dropped almost 50 per cent last year. The metal accounts for more than A$1 in A$5 of Australia's export income.

The local dollar "remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices," Stevens said in his statement. "A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

Australia's jobless rate climbed to 6.4 per cent in January from 6.1 per cent in December as the number of people employed fell by 12,200, government data released Feb. 12 showed. The central bank also lowered its growth and inflation forecasts in its quarterly monetary policy statement released last month.

Stevens's central bank counterparts abroad continue to ease policy to counter a global wave of disinflation. China, Australia's biggest trading partner, cut interest rates on Saturday before a yearly gathering of the Asian nation's leadership. Economists expect Premier Li Keqiang will announce a growth target of around 7 per cent for 2015, down from 7.5 per cent last year.