SYDNEY: Australia's economy grew at the fastest pace in three years last quarter as households spent far more than expected while exports enjoyed an Asian-driven boom, reviving the risk of a further rise in interest rates.
The Australian dollar jumped after government data showed gross domestic product (GDP) climbed 1.2 percent in the second quarter, compared to the first when it rose 0.7 percent.
That handily beat forecasts of a 0.9 percent increase and took growth for the year to 3.3 percent, marking Australia's 19th consecutive year without a recession.
The Reserve Bank of Australia (RBA) led the developed world by lifting interest rates 150 basis points between October and May. It has been on hold at 4.5 percent since as inflation moderated, and investors were even toying with the idea of a cut in rates given a slowdown in the United States and Japan.
Wednesday's upbeat data forced a major reappraisal, with interbank futures tumbling as the market sharply scaled back the chance of a cut.
"Australia is continuing to outperform major developed nations in terms of growth," said Su-Lin Ong, a senior economist at RBC Capital Markets.
"There is a lot of global uncertainty and that could keep the RBA sidelined into 2011, but nevertheless for an economy that is going through an enormous terms of trade shock, it still argues for higher rates."
RESOURCE BONANZA
Australia's good fortune owes much to the industrialisation of two billion people in China and India which is generating voracious demand for Australia's resource riches, from coal to copper to wheat.
That demand has driven huge price increases for Australia's two biggest exports, iron ore and coal, resulting in record profits for miners and massive investment plans for years ahead. This is why the RBA continues to tout a golden era of prosperity for the country, despite uncertainty abroad.
The total value of goods and services produced in the year to June stood at A$1.22 trillion ($1.1 trillion) in inflation adjusted dollars, or A$55,198 for every man, woman and child.
Growth in the second quarter was driven by household consumption which added 0.9 percentage points to GDP in a major surprise given lacklustre retail sales. Consumers spending on vehicles alone jumped a hefty 11.2 percent.
The economy was also looking more balanced with the private sector increasingly taking over from government stimulus as the engine of growth, an outcome which will please the RBA.
Australia's terms of trade also climbed over 12 percent in the quarter, showering the country in cash through profits, investment, employment and tax receipts.
Much of this money turns up in the income measure of GDP, which was up 8.2 percent on the same period last year, the fastest pace in 28 years.
Indeed, by adjusting away the jump in export prices, the "real" data understate the true strength of the economy. In nominal or current prices, GDP expanded by 3.6 percent in the quarter and a torrid 10 percent for the year.
"Without a doubt Australia currently has one of the strongest economies in the advanced world," said Craig james, chief equity economist at CommSec. "While other countries are still attempting to artificially stimulate their economy, Australia has clearly moved into third gear." - Reuters
The Australian dollar jumped after government data showed gross domestic product (GDP) climbed 1.2 percent in the second quarter, compared to the first when it rose 0.7 percent.
That handily beat forecasts of a 0.9 percent increase and took growth for the year to 3.3 percent, marking Australia's 19th consecutive year without a recession.
The Reserve Bank of Australia (RBA) led the developed world by lifting interest rates 150 basis points between October and May. It has been on hold at 4.5 percent since as inflation moderated, and investors were even toying with the idea of a cut in rates given a slowdown in the United States and Japan.
Wednesday's upbeat data forced a major reappraisal, with interbank futures tumbling as the market sharply scaled back the chance of a cut.
"Australia is continuing to outperform major developed nations in terms of growth," said Su-Lin Ong, a senior economist at RBC Capital Markets.
"There is a lot of global uncertainty and that could keep the RBA sidelined into 2011, but nevertheless for an economy that is going through an enormous terms of trade shock, it still argues for higher rates."
RESOURCE BONANZA
Australia's good fortune owes much to the industrialisation of two billion people in China and India which is generating voracious demand for Australia's resource riches, from coal to copper to wheat.
That demand has driven huge price increases for Australia's two biggest exports, iron ore and coal, resulting in record profits for miners and massive investment plans for years ahead. This is why the RBA continues to tout a golden era of prosperity for the country, despite uncertainty abroad.
The total value of goods and services produced in the year to June stood at A$1.22 trillion ($1.1 trillion) in inflation adjusted dollars, or A$55,198 for every man, woman and child.
Growth in the second quarter was driven by household consumption which added 0.9 percentage points to GDP in a major surprise given lacklustre retail sales. Consumers spending on vehicles alone jumped a hefty 11.2 percent.
The economy was also looking more balanced with the private sector increasingly taking over from government stimulus as the engine of growth, an outcome which will please the RBA.
Australia's terms of trade also climbed over 12 percent in the quarter, showering the country in cash through profits, investment, employment and tax receipts.
Much of this money turns up in the income measure of GDP, which was up 8.2 percent on the same period last year, the fastest pace in 28 years.
Indeed, by adjusting away the jump in export prices, the "real" data understate the true strength of the economy. In nominal or current prices, GDP expanded by 3.6 percent in the quarter and a torrid 10 percent for the year.
"Without a doubt Australia currently has one of the strongest economies in the advanced world," said Craig james, chief equity economist at CommSec. "While other countries are still attempting to artificially stimulate their economy, Australia has clearly moved into third gear." - Reuters
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