Australia economy slows, but recession-free for 26 yrs

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SYDNEY: Australia marked a world-record 26 years without a recession Wednesday after official figures showed another quarter of economic expansion, but analysts warned of uncertain times ahead as growth slows.

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The reading beat expectations, with some analysts predicting a contraction following a category four cyclone in late March as well as weak trade figures and tepid wages growth.

The economy grew 0.3 percent in the three months to March for an annual rate of 1.7 percent, the Australian Bureau of Statistics said.

However, while the annual rate was above forecasts — lifting the Australian dollar — it was well down from 2.4 percent in the previous quarter.

“In the context of the past few years, it is still a fairly weak outcome,” JP Morgan economist Tom Kennedy told AFP of the latest figures. “The real issue is that consumption is still pretty soft even though the saving rate fell… and (capital expenditure) was flat, still not doing anything.

“That’s really important for the Australian economy so the domestic drivers of growth in Australia are still pretty underwhelming.”

Australia last recorded two negative quarters of economic growth in March and June 1991, before enjoying 103 quarters without a recession to equal the record run set by the Netherlands, which ended in 2008.

Economists said the resources-rich nation’s long stretch of expansion was supported by economic reforms in the 1980s and 1990s, such as the floating of the local currency, a flexible labour market, financial sector and capital markets deregulation and lower tariffs.

Australia has also benefited from China’s economic growth and hunger for natural resources, which led to an unprecedented mining investment boom and record commodity prices.

Interest rates ‘on hold’

But experts have warned that growth in the next few years may not be as rosy, with the annual expansion rate of 1.7 percent the slowest since 2009.

“The weakness in today’s data extends beyond the weather,” Gareth Aird at Commonwealth Bank of Australia, told Bloomberg News. “The slowdown in the domestic economy has occurred at a time when the global economic backdrop has improved.

“This suggests that policymakers have their work cut out for them if Australia is to post the kind of growth outcomes they have forecast over 2017.”

For the March quarter, net exports detracted 0.7 percentage points from growth, while property investment fell 4.4 percent.

Consumer spending rose 0.5 percent for the three months but remained soft, reflecting slow growth in wages and household income, underemployment and high levels of household debt.

Australia is making a rocky transition away from a dependence on mining investment as the boom ends, with the central bank cutting interest rates to a record-low of 1.50 percent since November 2011 to support growth in non-resources sectors.

A booming housing market, particularly in Sydney and Melbourne, in recent years has made the RBA cautious about further rate cuts, while macro-prudential tools have been used to tighten lending, particularly to investors.

But rate rises are also not tipped by analysts, who said the Reserve Bank was likely to remain on the sidelines for some months amid the soft income outlook.

“Overall, today’s data are consistent with monetary policy remaining on hold,” National Australia Bank economists Riki Polygenis and James Glenn said in a note.

“The (Reserve Bank of Australia) will look through the volatility in (economic growth), however mixed labour market outcomes and weak wages and inflation data will prevent any hike.”

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