Consumer spending up

Photo / Steven McNicholl

Australia's economic growth probably accelerated in the second quarter, helped by government spending on infrastructure and higher exports of iron ore to China even as recoveries in Japan and the US showed signs of faltering.

Gross domestic product advanced 0.9 per cent from the previous three months, when it rose 0.5 per cent, according to the median of 23 estimates in a Bloomberg News survey.

Consumer activity perked up in July in the absence of further interest rate increases by the Reserve Bank, with both retail spending and building approvals proving stronger than expectations, new data shows.

However, demand for credit remained sluggish. Consumers spent a record A$20.4 billion ($26 billion) in July, a 0.7 per cent seasonally adjusted increase on the previous month, and nearly double the growth economists had forecast.

The Australian Bureau of Statistics also said yesterday that building approvals rose 2.3 per cent to 13,732 units in July, ending a three-month run of declining growth.

The central bank predicts that Australia's economy, one of the few to skirt last year's global recession, will accelerate as China's demand for raw materials and energy stokes a mining boom. That's offsetting weaker spending by consumers, including home buyers, after governor Glenn Stevens raised borrowing costs six times from October to May.

"Australia is well on its way to notching up 20 consecutive years of economic growth, but it will mask the weakening in economic momentum over the past two months," said Craig James, a senior economist at Commonwealth Bank of Australia.

"This loss of momentum has clearly shown up in consumer spending. But the longer that the Reserve Bank stays on the interest rate sidelines, the better the outlook" for domestic demand, he said.

Australia's rate moves have helped stoke a 6.8 per cent gain in the nation's currency against the US dollar in the past 12 months, the third-best performer among the world's 16 most actively traded currencies.

The economy expanded 2.8 per cent from a year earlier in the second quarter, after gaining an annual 2.7 per cent in the previous period, the survey showed.

Signs that growth may be faltering in the US and European economies was among reasons Stevens left borrowing costs unchanged four weeks ago for a third straight month. All 23 economists surveyed by Bloomberg last week expect him to keep the overnight cash rate target at 4.5 per cent next Tuesday.

There are signs of weaker growth in Australia, where federal elections this month left the nation with a hung Parliament. Exports probably added 0.5 percentage point to second-quarter GDP, said Rob Henderson, chief markets economist at National Australia Bank in Sydney.

- Bloomberg