Australia’s resource-rich economy grew at a pedestrian 0.4 per cent last quarter as business spending slipped from record highs, knocking the local dollar lower and keeping alive the chance of further cuts in interest rates.
The quarterly rise in gross domestic product (GDP) was half that expected by analysts, though much of the miss was caused by a sharp drop in farm inventories as grains stocks were exported.
The value of all goods and services produced was put at an inflation-adjusted A$337 billion ($354 billion), for annual growth of 2.3 per cent.
That was much nearer forecasts thanks to upward revisions to gross domestic product for early 2011.
The soft headline result lopped half a cent off the Australian dollar, already under pressure from concerns about the global economy and the eurozone debt crisis.
“It still leaves growth running at just over 2 per cent, so we’re doing much better than most, but it’s clearly a bit of a disappointment,” said Stephen Walters, chief economist at JPMorgan.
“It does suggest there’s some weakness elsewhere in the economy, that’s for sure.”
The result was a blow to the optimism of the Reserve Bank of Australia (RBA), which chose to keep interest rates steady at 4.25 per cent this week in anticipation of better growth.
Earlier on Wednesday, RBA Deputy Governor Philip Lowe said the relatively high level of Australia’s interest rates and currency were necessary to avoid repeating the inflationary busts of past mining booms.
Still, he did note there would be scope to ease further should the pressure of a high Australian dollar lead to a sustained rise in unemployment. Official jobs figures are due on Thursday and are expected to show the unemployment rate ticked up to a still low 5.2 per cent in February. Analysts suspect it would take a rise to 5.5 per cent or higher to prompt a further rate cut to 4.0 per cent.
Futures markets presently imply around a 38 per cent probability of a cut in April, rising to 80 per cent in May and almost 100 per cent by June.
AN UNEVEN ECONOMY
Australian Treasurer Wayne Swan put a brave face on the meagre growth by contrasting it with economies that contracted last quarter, including Britain, Germany, Japan and Italy.
“Our low unemployment, sturdy public finances, very low debt, contained inflation, and huge pipeline of investment provide a solid foundation that will help us withstand global turbulence,” Swan told reporters.
Indeed, Australia’s annual growth of 2.3 per cent in 2011 handily outpaced the eurozone’s 0.7 per cent, Britain’s 0.5 per cent and 1.7 per cent in the United States.
Output for the whole year reached a real A$1.34 trillion, or A$58,925 for each of Australia’s 22.8 million people. That compared to per capita gross domestic product in the United States of $42,916.
While business spending did slip in the fourth quarter it followed a surge the previous quarter and investment was still up 13.4 per cent for the year.
The country also has resource projects worth A$425 billion under way or planned as miners rush to meet demand from the urbanising masses of China and India.
Yet also evident was the drag from a high Australian dollar and a more cost-conscious consumer. Household consumption grew an historically soft 0.5 per cent in the fourth quarter, half the pace of the previous quarter.
And Australians continued to squirrel money away, with a household savings ratio of 9.0 per cent, twice that of the United States.
That has led to much lamenting from sectors such as retailing, manufacturing and tourism, which have been forced to cut costs and speed up the pace of innovation.
But while acknowledging the pain caused by a strong currency and penny-pinching consumers, the RBA’s Lowe argued there was no other choice.
“These costs are undoubtedly real and they are not borne evenly across the country,” he told an industry conference.
“However, the benefits of structural change are also real and, over time, as we have seen in the past, these benefits do get spread widely across the population.”