Hockey welcomes 'positive signs' on economy
Treasurer Joe Hockey has cautiously welcomed higher than expected growth figures in the latest national accounts, but says 'we need to do better'.PT0M0S 620 349
Consumers spending more and saving less have helped the Australian economy grow by a stronger than expected rate in the last three months of the year.
The economy grew at a seasonally adjusted 0.8 per cent in the December quarter, taking the annual growth rate to 2.8 per cent. The quarterly figures were up from a 0.6 per cent expansion in the three months to September.
Growing: The Australia economy picked up steam in the December quarter. Photo: Tamara Voninski
"There are some positive signs," federal Treasurer Joe Hockey said of the latest GDP figures.
"I remain positive about the outlook for the Australian economy and the trends revealed today [show] we are headed in the right direction.
"[But the] numbers highlight the growth challenge that the economy will face in the next couple of years as construction on a number of large mining projects comes to an end."
The Australian dollar jumped nearly half a cent on the back of the stronger-than-expected figures to trade as high as US89.97 cents.
The fourth-quarter growth was driven by a 0.6 per cent boost from net exports and a 0.5 per cent contribution from consumption. A 0.3 per cent fall in investment offset some of the gains.
Australia has not fallen into recession - measured as two quarters of negative growth - for more than two decades, despite the impact of the Asian and global financial crises on the world's economies.
Australians spending more
"While the wind-back in mining investment expected over the next couple of years will weigh on growth, there are some early signs that other sectors of the economy are starting to pick up," ANZ senior economist Felicity Emmett said.
"Housing investment is set to pick up strongly this year, household consumption spending looks to be trending higher, and the outlook for non-mining investment looks to be improving."
Household consumption improved slightly for the period to a seasonally adjusted 0.8 per cent, while government spending lifted by 0.3 per cent. At the same time, the household savings ratio slipped from its almost decade-highs to 9.7 per cent.
"It did come back a bit," National Australia Bank senior economist David de Garis said of the fall in the household savings ratio.
"Maybe that's a sign that consumers are a little bit less anxious towards the end of last year, but consumer sentiment has come off a bit since then, as we've had a lot of potentially destabilising news on corporate lay-offs."
Growth 'rebalancing' away from mining
Commonwealth Bank economist Diana Mousina said the data showed "a stronger indication that the mining to non-mining growth transition is proceeding".
"Today's data shows that residential construction activity picked up over the quarter, which is really supportive of the growth transition. The residential construction space is one of the areas that the RBA is trying to target as an offset to lower levels of mining construction."
"Nominal GDP really picked up quite significantly and that's very positive for government revenues and well as business hiring and capital expenditure plans, and that will translate into higher labour market hiring as well."
The mining, manufacturing, rental, hiring and property sectors contributed 0.1 per cent to GDP, while the terms of trade - a ratio that measures export prices to import prices - rose by 0.6 per cent.
Meanwhile, Australia's largest trading partner China said it would maintain a 7.5 per cent growth target for this year. China has held the same target over the past two years, with growth in the world's second economy seem as supportive for Australia.
"Given that GDP growth is expected to be 7.5 per cent for longer, we see this target as supportive for the Asian region, trade, and for commodity currencies more generally," TD Securities head of Asia-Pacific research Annette Beacher said
Challenges still ahead
Despite the improved growth rate, economists pointed out at the economy was still growing below the trend rate of 3 per cent, and that challenges remained ahead for Australia as mining investment fades.
"The terms of trade actually rose slightly in the quarter but are expected to fall this year and this will likely erode income," Citi economists Paul Brennan and Josh Williamson said.
"The Australian dollar is probably still too high," the Citi economists added. "Mining GDP is still rising, helped by increasing exports, but the projected halving of mining [capital expenditure] is still ahead."
Mr De Garis added that the figures showed that the domestic economy remained quite soft, with business investment contracting for the quarter.
"Consumer and business spending still remains on the cautious side," he said.
Economists had tipped the growth rate for the quarter to come in at 0.6 per cent, and for the year-on-year rate to be 2.5 per cent.
A series of indicators released over the past week that feed into the GDP figures have painted a mixed outlook for the economy.
Data released on Tuesday showed that net exports were expected to contribute 0.6 percentage points of growth to fourth-quarter GDP.
At the same time, business investment intentions projections for the 2014-15 reaffirmed expectations of a fall-off in mining firms' spending plans but pointed to a soft outlook for investment by non-resources companies.
Meanwhile, other partial GDP indicators showed reasonably strong growth in businesses' wages and profits.
Economists have said resources exports were expected to driven GDP growth, but that domestic demand remained weak.