Australia will phase out stimulus spending in the coming months amid signs the developed world’s best performing economy will be the first among its peers to lift interest rates.
Gross domestic product figures out on Wednesday showed the economy expanded by 0.6 per cent between April and June compared both to the previous quarter and the same period a year before.
Wayne Swan, treasurer, said the performance was remarkable given the fragility of the global economy. “Today’s result means we are the fastest growing advanced economy over the past year and the only advanced economy to have recorded positive growth over the past year,” he said.
The Treasury estimated that the economy would have contracted by 1.3 per cent year-on-year without the stimulus programme.
“Economic stimulus has meant that Australia has avoided technical recession,” Mr Swan said. “We have been going forwards while so many other economies have been going backwards.”
While South Korea like many of Asia’s more developed economies contracted on an annual basis in the second quarter, it grew strongly on a sequential basis and Yoon Jeung-hyun, finance minister, said on Wednesday that growth for the quarter will probably be revised up to 2.6-2.7 per cent from an earlier 2.3 per cent when updated figures are released on Thursday.
Australia’s latest GDP numbers were boosted by robust contributions from the household sector and business spending on machinery and equipment. Economists had expected an 0.2 per cent GDP advance in the latest quarter.
The economy grew a revised 0.4 per cent quarter-on-quarter in the first three months of the year but contracted by a revised 0.7 per cent in the October-December period, Australia’s sole quarter of negative growth since the global downturn began.
Mr Swan said the return of business investment and global growth would allow Australia to wind back stimulus measures which had always been temporary in nature.
“The prospect of a gradual pick up in private sector activity will allow the staged withdrawal of the stimulus to proceed from the December quarter this year,” he said.
The recent strength of Australia’s economy, which has grown in each of the last 18 years, has lifted the odds that the country’s central bank will lift interest rates from their 49-year low of 3 per cent before the year end.
A robust banking system and strong exports during much of the global downturn have helped the economy outperform its peers. Government fiscal stimulus measures worth A$42bn have also promoted job creation in the retail and construction sectors, two of the nation’s biggest employers.
However, Stephen Koukoulas, chief global markets strategist at TD Securities, warned that Australia is suffering from broad based deflation and that prices for the products it is producing, including coal and iron ore, are falling.
He pointed out that the number of hours worked by Australians had fallen for three straight quarters, that GDP on a per capita basis has been flat, and that the country’s terms of trade had dropped by close to 18 per cent in the last three quarters.
“Australia is a star performer in this global financial and economic crisis but that doesn’t mean it has escaped all the misery that the crisis has imparted on the world,” Mr Koukoulas said.
