Australia | Dec 06 2006
By Chris Shaw
Australia’s growth for the September quarter was a little lower than economists had expected, coming in at an increase of 0.3% against forecasts of a 0.4% increase, meaning annual growth sits at 2.2%.
As the Commonwealth Bank notes, the latest data shows some parts of Australia, including Tasmania and the rural economy, are technically in recession, while half the states and territories showed a contraction in growth in the third quarter.
But Stephen Koukoulas of TD Securities warns those who see this as a positive, in terms of easing inflation and interest rate pressures, the data shows the inflationary pressures remain very strong.
He suggests this is because the economy’s capacity constraints mean firms can’t find skilled workers or lift output fast enough to meet domestic and overseas demand for products, an outcome he suggests is likely to worry the Reserve Bank of Australia (RBA) more than a lower-than-expected growth number.
Commonwealth Bank agrees inflation measures remain at elevated levels but sees some good news for inflation. In the bank’s view the fact public spending remains buoyant should mean an increase in the capital to labour ratio, which in turn should result in productivity growth and a slowing of the increase in unit labour costs.
This should pave the way for a rate cut towards the middle of next year, though it could come sooner than expected if weaker data continue. As rates come down the bank sees economic growth again picking up.
While not calling a rate cut the ANZ Banking Group suggests the data at least gives the RBA some breathing space to assess further data before being forced to act on rates again, as the slower growth implies an easing in capacity constraints.
The bank suggests, however, the overall economic growth outlook is being clouded somewhat by the fact business investment can no longer be relied upon to drive the economy, while the required rebalancing towards higher exports has not yet occurred. As a result it suggests getting used to the Australian economy showing growth figures with a “2” in front, rather than the “3” or “4”, as was the case when the economy was really performing on all cylinders.