Australia's economy rebounded sharply last quarter as commodity exports boomed while consumers and the government lifted spending, extending the resource rich nation's 25-year streak of uninterrupted expansion. The recovery saved the political blushes of the conservative government of Malcolm Turnbull, which is riding low in the polls and might have come unglued at news of an actual recession.
"No recession, all the doomsters can go back to their caves," said Shane Oliver, head of economics at AMP Capital. The local dollar rose a fifth of a US cent after the Australian Bureau of Statistics reported gross domestic product (GDP) climbed 1.1 percent in the fourth quarter.
That handily topped forecasts of a 0.7 percent gain and came as a huge relief after the third quarter's shock 0.5 percent decline. It also marked 102 quarters without recession, just one quarter short of the all-time record held by the Netherlands.
"We have ended up with quite strong consumer spending, a rebound in housing, stronger business investment, stronger public demand and stronger net exports," Oliver said. Growth for the year also surprised at 2.4 percent, up from 1.9 percent and ahead of most of Australia's rich world peers - an outcome that virtually shuts the door to any further rate cuts this year.
The Reserve Bank of Australia (RBA) is counting on growth to pick up to around 3 percent this year and next, thanks in part to surging exports of liquefied natural gas. Record-low interest rates of 1.5 percent are supporting consumer spending and home building, but the RBA is wary of easing further for fear of stoking already-hot house prices.
Figures from property consultant CoreLogic out on Wednesday showed prices in the major cities surged in February, taking the annual pace of gains to its highest since mid-2010. Yet neither is there much pressure for a rise in rates given measures of inflation are near historic lows and wages are growing at a pace last seen in the recession of 1991.
Indeed, real unit labour costs shrank 3.4 percent in the quarter implying businesses were becoming more competitive. Companies were certainly rolling in cash with surging prices for iron ore and coal lifting miners' profits by 50 percent.
That flood of money was a big boost to measures of national income and nominal growth. Real net national disposable income, a proxy for living standards in general, leapt 2.9 percent in the quarter and 6.8 percent for the year. Likewise, nominal GDP jumped 3.0 percent in the quarter, the biggest gain since mid-2010, taking output for the year to A$1.7 trillion ($1.30 trillion) in current dollars.
That will be a boon for the government since it is nominal growth that drives tax revenues and it needs all the money it can get to plug a persistent budget deficit. Ratings agency S&P Global has repeatedly cautioned that it might downgrade the country's triple A credit rating if the promised path to a surplus by 2020 were to slip again.
"This should give the ratings agencies pause for thought," said Michael Blythe, chief economist at CBA. "Higher tax revenues, rising national income and a shrinking current account deficit don't seem to argue for a downgrade."
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