Australia | Mar 07 2007
By Chris Shaw
While financial markets continue to gyrate wildly the Australian economy has continued to power ahead as growth in GDP for the December quarter has come in at an increase of 1.0%, almost double consensus estimates.
Stephen Koukoulas of TD Securities notes this represents the highest quarterly outcome since the June quarter of 2005, while yearly GDP of 2.8% is the strongest since the March quarter of 2006.
All this is while the Australian economy has suffered from the drought, the fall in farm GDP taking 0.7% off the actual GDP outcome. Koukoulas suggests this is actually a positive from an inflation perspective as the non-farm portion of the economy continues to grow faster than its long-term trend rate.
As recent rain has all but ended the drought he sees potential for further gains in the growth rate, with a 4.0% increase in GDP for the full year possible on his estimates. This would again put pressure on both the existing capacity constraints in the economy and inflation, so Koukoulas suggests it is too early to be certain the Reserve Bank of Australia (RBA) has finished with lifting interest rates.
ANZ Banking Group agrees, suggesting the risk to rates in the short-term remains to the upside, particularly as the current strong momentum reduces the risk of a significant slowing in the economy if wage and inflationary pressures dictate a further increase in rates is necessary.
Westpac expects further action, though not in the short-term. It sees little to stop growth from continuing to be strong in coming quarters, particularly as the global growth outlook remains supportive. The strong growth outlook has it suggesting inflation will re-emerge as an issue, but this will take some time to fully flow through. The bank expects the RBA to increase rates in the first quarter of next year.
In contrast the Commonwealth Bank expects no action on rates, as it points out the growth rate for the half-year of 1.4% matched that of the June half, meaning there is no evidence of the economy growing too quickly and so forcing the RBA to act.