Business investment boosts Australia’s economy

December 6, 2017

NEWS DESK: Australia’s economy grew 0.6 percent in the third-quarter, as business investment lifted despite weak household spending, reflecting the divergence between the two segments, official data showed Wednesday, reported AFP.

The quarterly expansion took the annual rate of growth to a healthy 2.8 percent, slightly below expectations but broadly in line with the central bank’s forecasts, the Australian Bureau of Statistics (ABS) figures showed.

“The solid 0.6 percent growth outcome in the September quarter national accounts has accelerated growth from 1.9 percent to 2.8 percent through the year,” Treasurer Scott Morrison told reporters in Canberra.

“This is above the OECD (Organisation for Economic Co-operation and Development) average and puts Australia back up towards the top of the pack for major advanced economies around the world.”

The previous quarter’s reading of 0.8 percent was revised up to 0.9 percent, extending the Australian economy’s uninterrupted growth to 26 years without a recession.

The ABS’ chief economist Bruce Hockman said the quarterly expansion was driven by increased activity in both private business investment and public infrastructure, which “underpinned broad growth across the industries”.

Seventeen out of 20 industries recorded positive growth, led by the professional, scientific and technical services, healthcare and social assistance, and manufacturing sectors.

While wages increased over the three months, household consumption was weak at 0.1 percent, leading to a rise in the savings ratio for the first time in five quarters, Hockman added.

‘No case for rate hike’

Australia has been exiting an unprecedented mining investment boom, with the Reserve Bank of Australia (RBA) cutting interest rates to a record-low of 1.50 percent since November 2011 to boost growth in non-resources industries.

But the transition has been rocky, with the central bank keeping rates on hold for one-and-a-half years amid concerns about tepid wages growth, high household debt and soft inflation figures.

“The dichotomy between the business and household sectors was plain to see in today’s Q3 GDP numbers,” HSBC economists Paul Bloxham and Daniel Smith said in a note.

“As yet, the improvement in business conditions has yet to meaningfully feed through to the household sector.”

Economists said they did not expect a near-term rise in interest rates until a pick-up in wages and inflation, which at 1.8 percent is below the Reserve Bank’s target band of 2.0-3.0 percent.

Domestic price pressures remained soft in the third quarter — the weakest reading since March quarter 2016, the data showed.

While total compensation of employees grew by 1.2 percent for the quarter, it was driven by employment rather than wages, analysts said.

“The RBA is clearly increasingly confident with the trajectory of the economy in terms of activity and the labour market, but inflation remains too low,” ANZ senior economist Felicity Emmett said.

“There are some signs today of a pick-up, but that will need to be confirmed by other indicators, in particular the wage price index, before the RBA will be confident to lift the cash rate.”

Capital Economics’ chief economist for Australia and New Zealand Paul Dales said he did not expect GDP growth next year to meet the RBA’s 3.0 percent forecast.

“The performance of the economy in 2018 will largely come down to whether stronger business investment can continue to compensate for weaker dwellings investment and consumption, as it did in the third quarter,” he said.