Economic growth smashes forecasts

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source: http://www.abc.net.au/news/stories/2010/09/01/2999418.htm



Australia's economic growth has passed all but the most optimistic forecasts, with the economy expanding 3.3 per cent over the last financial year.
Growth over the June quarter came in at 1.2 per cent, which is the biggest quarterly economic growth in three years.
First quarter GDP growth was also revised up to 0.7 per cent from an original reading of 0.5 per cent.
Economist forecasts in a survey by Bloomberg ranged from June quarter GDP growth of 0.7 per cent up to 1.3 per cent.
The median prediction among the 23 economists surveyed was for GDP to rise 0.9 per cent for the quarter, and 2.8 per cent over the year to the end of June.
The Australian dollar gained around a quarter of a cent immediately after the data was released, rising from about 89.5 US cents to 89.78.
The positive figures also supported morning gains on the Australian share market, with the All Ordinaries index bouncing about 7 points immediately after the data came out, and rising further since.
The benchmark indices have defied a flat lead from Wall Street, with the All Ordinaries 1.8 per cent higher at 4,518 by 12:47pm (AEST) and the ASX 200 up 84 points to 4,488.
'Goldilocks economy'
Economists also liked the figure, and Joshua Williamson from Citi says it strikes a good balance of growth without putting too much pressure on interest rates.
"This is a better figure than pretty much anybody was expecting in the markets today, and it's a fantastic result for the Australian economy," he told ABC finance reporter Rebecca Hyam.
He also says it is a positive result for Julia Gillard in her attempts to retain power.
"I think the Government will be particularly pleased with this result, given where we are with respect to the election at the moment," he said.
"There's always a political dimension to these figures and, certainly, the Government could use these figures as evidence that its economic management over the time has probably helped the economy move forward.
"Certainly these figures build upon the stimulus measures that were designed to get Australia through the GFC."
He says the detail of the figures shows the economy seems to have hit a sweet spot where price pressures are low despite solid growth.
"What we're seeing here is an economy that's moving back to trend - it's a little bit higher than where the Reserve Bank thought it would be, but the inflation metrics that have come out with today's GDP result show that that shouldn't be a concern for the Reserve Bank," Mr Williamson added.
"So I think what we've got here is a continuation of this Goldilocks economy, where we've got a good stable growth rate, inflation for the time being appears to be under control, so households and businesses shouldn't be too concerned that the Reserve Bank is going to pull the trigger any time soon."
'Consumer caution evaporating'
The Commonwealth Bank's chief economist Michael Blythe agrees the Reserve Bank is likely to remain on the sidelines for at least the next few months because of the current global economic jitters.
"It highlights just how different the Australian economy is from the rest of the world," he told Reuters.
He says the Government is likely to be pleased that private sector spending appears to be picking up just as its stimulus spending tapers off.
"The most encouraging sign is some indication that the private sector is coming back in - a lot of the past 12 months has been a public sector a story and we really need the private sector to sign off on the recovery story," he added.
"The consumer caution angle that was one of the domestic risks appears to be evaporating pretty quickly."
Joshua Williamson agrees that this month's growth was more broadly based than previous quarters, with public spending playing a smaller role and consumer spending growing at a much stronger than expected 1.6 per cent in the quarter, up from 0.5 per cent in the three months to March.
"What we are seeing though is private sector consumption has grown, accelerated a little bit, but dwelling investment has now finally turned the corner and that grew by a very strong 5 per cent," he explained.
"The other thing that's been very heartening to see is that net exports - that is exports less imports - has actually added to growth for the first time in a year.
"So fairly broad sector growth - what we'd like to see going forward is a continuation of that transfer away from public sector stimulus to more private sector growth, and when that happens we'll know that that journey's complete."

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A Goldilocks economy is a not too hot or cold economy, sustaining moderate economic growth and a low inflation allowing for a market friendly monetary policy.