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Australia's economy to extend growth run as exports boom
February 28, 2017 / 3:54 AM / 7 months ago

Australia's economy to extend growth run as exports boom

SYDNEY (Reuters) - Australia’s economy is expected to have returned to growth last quarter as exports boomed and consumers and the government spent more, extending the resource rich nation’s remarkable 25-year run of uninterrupted expansion.

Figures on gross domestic product (GDP) due on Wednesday are forecast to show growth of 0.7 percent in the fourth quarter, bouncing from a shock 0.5 percent contraction in the third.

That would mark 102 quarters without recession, a single quarter short of the world record held by the Netherlands.

“Australia looks to have steered clear of a technical recession and, more importantly, it is clear that activity levels have continued to improve in the past couple of months,” said Savanth Sebastian, a senior economist at CommSec.

Annual growth might only be a tepid 1.9 percent, with the economy barely expanding over the second half of the year. Yet the Reserve Bank of Australia (RBA) is counting on a pick up to around 3 percent this year and next, thanks in part to surging resource exports and notably liquefied natural gas.

Higher prices for key exports including iron ore and coal had already delivered Australia’s smallest current account deficit in 15 years at just A$3.9 billion ($2.99 billion).

Figures from the Australian Bureau of Statistics out on Tuesday showed the balance of goods and services improved by more than A$8 billion to reach a surplus of A$4.7 billion.

Miners also managed to ship more product in the quarter adding 0.2 percentage point to real economic growth. Government spending on infrastructure added another 0.3 percent.

DODGING A DOWNGRADE

Scott Haslem, an economist at UBS reckons that, with prices for iron ore holding strong, Australia could actually record its first current account surplus since 1975 in this quarter.

That should lessen the risk of the country losing its triple A credit rating given S&P Global Ratings cited a reliance on foreign funding as one reason it might downgrade.

“The extent and duration of the spike of commodity prices, and subsequent material improvement of Australia’s trade and external position, was largely unexpected,” said Haslem.

He noted that when S&P warned about the rating, it had forecast a current account deficit of around 4 percent of GDP this year. Now it was more likely to be 1 percent.

The flood of cash from exports was also a big boost to measures of national income and nominal growth.

The impact on incomes was highlighted in data out Monday showing company profits in Australia surged 20 percent in the fourth quarter, led by a near-50 percent jump for miners.

Andrew Hanlan, a senior economist at Westpac, estimates GDP in current dollars soared 2.7 percent in the quarter and lifted the annual pace to a five-year high of 5.5 percent.

That would be a boon for the conservative government of Malcolm Turnbull since it is nominal growth that drives tax revenues and it needs all the money it can get to plug a persistent budget deficit.

Reporting by Wayne Cole; Editing by Shri Navaratnam

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