Australia trade, government spending add to fourth quarter growth

Australia's current account deficit widened sharply last quarter but trade still added more to economic growth than many expected while a rebound in government spending provided a further fillip. Official data out on Tuesday showed the deficit widened to A$8.37 billion ($8.93 billion) in the fourth quarter, from A$5.8 billion the previous quarter and in line with forecasts of A$8.1 billion.
Yet net exports, or exports minus imports, contributed 0.3 percentage points to gross domestic product (GDP) in the quarter, beating forecasts of a flat outcome. Also supporting growth was a 0.9 percent pickup in government spending to A$79.56 billion, which promised to add another 0.2 percentage points to GDP.
"It's all shaping up for growth of around 0.7 percent in the fourth quarter, though consumer spending on services is still a big unknown," said Michael Blythe, chief economist at Commonwealth Bank on Australia. The GDP report is due on Wednesday and analysts have been looking for growth of around 0.7 percent in the quarter and 2.4 percent for the year.
"Take the second half of the year as a whole and growth is running at a solid 3.25 percent (on an annual basis), which is right where the Reserve Bank wants it to be," he added. "So it's hard to see why it would be rushing to cut rates later today." The Reserve Bank of Australia (RBA) announces the outcome of its monthly policy meeting at 0330 GMT and markets imply only a one-in-ten chance of an easing to 4.0 percent.
A Reuters poll of 19 analysts found all expected policy to stay on hold, following 50 basis points of easing back in November and December. The central bank did surprise many last month by not cutting again and set a high bar for a move by saying that demand conditions would have to "weaken materially" to justify an easing. Since then, the domestic data has shown no such weakening and conditions abroad have, if anything, become less dangerous with Europe making progress in its debt crisis.