Aussie economy rebounds in Q2 amid infrastructure spree

SYDNEY • Australia's economy rebounded last quarter as consumers and government spent freely after a weather-beaten start to the year, while a long downturn in mining investment finally loosened its deadening grip on growth.

Yesterday's gross domestic product report showed that the economy expanded 0.8 per cent in the second quarter, up from 0.3 per cent in the first quarter and outpacing even the much-vaunted US recovery.

Yet all this growth has shown no sign of rekindling inflation and, with plenty of spare capacity in the labour market, the Reserve Bank of Australia (RBA) seems content to leave interest rates at record lows for months to come.

RBA governor Philip Lowe said in a speech late on Tuesday: "It will be some time before we are at what could be considered full employment and before underlying inflation is at the mid-point of the medium-term target range. This means that stimulatory monetary policy continues to be appropriate."

The data won a round of applause in the bond market, where yields on government debt fell. The local dollar dipped to US$0.7993 as speculators had been wagering on an even stronger growth outcome.

Over the year to June, GDP amounted to A$1.75 trillion (S$1.89 trillion), or about A$72,180 for each of Australia's 24.5 million citizens.

The economy expanded by 1.8 per cent compared with a year ago, held back by a rare contraction in the third quarter of last year. Australia has not suffered an outright recession since 1991.

Annual growth could well approach 3 per cent.

Driving the latest pick-up was a surge in public investment, including roads, rail and a major new hospital - the country's single most expensive building.

As a result, government spending alone added 0.8 percentage point to growth. Just behind was household consumption with a contribution of 0.4 percentage point.

Consumers splashed out on food, alcohol, clothes, household goods and communications, while using less gas and electricity because of rising utility prices.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 07, 2017, with the headline 'Aussie economy rebounds in Q2 amid infrastructure spree'. Print Edition | Subscribe