Bloomberg News

Australia’s Economic Growth Slows as Rate-Cut Bets Rise

September 04, 2012

Australia’s Economic Growth Slows More Than Forecast on Housing

Residential buildings stand in the suburb of Waterloo in Sydney. Photographer: Brendon Thorne/Bloomberg

Australia’s economy slowed last quarter on weaker housing and rising imports, sending the local currency lower as traders bet the central bank will resume interest-rate cuts to prolong a 21-year expansion.

Second-quarter gross domestic product advanced 0.6 percent from the previous three months, when it rose a revised 1.4 percent, a Bureau of Statistics report released in Sydney today showed. The median of 26 estimates in a Bloomberg News survey of economists was for a 0.7 percent gain. From a year earlier, the economy expanded 3.7 percent, the strongest annual pace since 2007 after the revised 4.4 percent growth in the first quarter.

The report showed the fastest first-half expansion in five years before companies including BHP Billiton Ltd. scaled back mining projects this quarter in response to lower prices of iron ore, the nation’s most valuable export. Reserve Bank of Australia Governor Glenn Stevens cut rates in May and June to buttress consumption as an elevated currency extended a slump in manufacturing and services.

“Today’s figures will not change the fact that the RBA has a bias to ease monetary policy further,” said Justin Fabo, senior economist at Australia & New Zealand Banking Group Ltd. in Sydney. ANZ Bank predicts the overnight cash-rate target will be lowered by November and again in early 2013, he said.

Government spending rose 1.6 percent in the second quarter, adding 0.3 percentage point to GDP growth, and household consumption advanced 0.6 percent last quarter, also adding 0.3 point to the expansion, today’s report showed.

Housing Slump

Dwellings decreased 1.7 percent, subtracting 0.1 point from growth, the report showed. Imports gained 0.9 percent, subtracting 0.2 point from the expansion. Inventories subtracted 0.3 point from growth.

The local currency touched $1.0190, the lowest since July 25, and bought $1.0218 at 1:26 p.m. Sydney time compared with $1.0225 late yesterday in New York. Asian stocks fell for a fifth day, with the MSCI Asia Pacific Index dropping 0.9 percent at 12:27 p.m. in Tokyo.

Traders are pricing in about a 70 percent chance the RBA will lower the benchmark rate by a quarter percentage point to 3.25 percent at its meeting next month, swaps data compiled by Bloomberg show.

Resource investment to meet Chinese demand and foreign investment funds seeking a haven have spurred gains in the currency, which closed above parity with the U.S. dollar for all but 23 days this year. The Aussie has averaged $1.0246 in the past two years, compared with 72 U.S. cents in the prior decade.

Dollar’s Decline

Mounting signs of a slowdown in China’s economy have spurred a 3.4 percent drop in the Aussie over the past month against its U.S. counterpart, the worst performer among major currencies tracked by Bloomberg. A quarter of Australia’s exports, or about 5 percent of GDP, goes to the world’s second-largest economy, and 60 percent of those shipments are iron ore.

“Australian economy grew faster than every single major advanced economy both in the June quarter and over the year to June, and has successfully completed a stunning 21 consecutive years of economic growth -- a feat not matched by any other advanced economy over this period,” Treasurer Wayne Swan said in a statement after the release.

The nation’s household savings ratio rose to 9.2 percent in the three months through June from a revised 8.9 percent in the first quarter, today’s report showed.

RBA’s Pause

The RBA yesterday held its benchmark interest rate at 3.5 percent for a third straight meeting, citing “quite firm” consumption in the first half, commodity prices that have fallen “sharply” in recent months and a more uncertain outlook for China’s growth.

Central banks in the Asia-Pacific region are straddling between containing inflation and shielding their economies from the worsening global outlook.

Reports today showed emerging inflation pressure elsewhere in the region. Taiwan’s price gains accelerated to the fastest pace in four years in August, while Philippine inflation quickened to a seven-month high.

Thailand’s central bank will probably hold its benchmark rate at 3 percent today, refraining from cutting borrowing costs even as inflation eased in August, according to 18 of 21 estimates in a Bloomberg News survey.

Meanwhile, European retail sales probably fell 0.2 percent in July from June, when they rose 0.2 percent, according to a Bloomberg survey. Poland will probably keep its benchmark interest rate at 4.75 percent, another survey showed. Services purchasing managers’ indexes are due in economies including France and Germany.

Australia’s Risks

In Australia, data since midyear have indicated that the economy may grow more slowly than it did in the first half.

A government report two days ago showed retail sales fell 0.8 percent in July from a month earlier, the steepest drop since October 2010. Consumer confidence in August declined by the most in five months, according to a Westpac Banking Corp. and Melbourne Institute index.

BHP, the world’s biggest miner, last month decided to delay approval of an estimated $33 billion expansion of the Olympic Dam copper, uranium and gold mine. Fortescue Metals Group Ltd. (FMG), Australia’s biggest iron ore producer after Rio Tinto Group and BHP, said yesterday it’s cutting its full-year capital spending forecast by 26 percent to $4.6 billion.

Billionaire Gina Rinehart said high costs and higher risks may see mining companies abandon iron-ore operations in Australia, where she’s amassed a fortune estimated at $19.3 billion from the steel-making material.

“Australia is indeed becoming too expensive and too uncompetitive to do export-orientated business,” Rinehart, Asia’s richest woman, said in a video presentation. “We are becoming a high-cost and high-risk nation for investment.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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