Australia's economy outpaces forecasts, peers in first quarter

Australia's economy grew at the fastest pace in a year last quarter as the nation shipped more resources abroad, built more homes and bought more consumer goods, an upbeat surprise that sent the local dollar higher.

Wednesday's data showed gross domestic product (GDP) expanded by 0.9 per cent in the first quarter, up from 0.5 per cent the previous quarter. That outpaced forecasts of 0.7 per cent and lifted the dollar above 78 US cents.

"It puts Australia in a unique position of being one of the few developed economies which have had a pretty solid start to the year," said Tom Kennedy, an economist at JPMorgan.

"It supports the argument for the RBA to sit back and evaluate how the easing to this point has filtered through the economy."

The Reserve Bank of Australia (RBA) has done its best to shore up demand by cutting interest rates twice this year to an all time low of 2 per cent, and might yet have to act again.

Interbank futures imply a 60 per cent probability of another easing by Christmas, though few see much chance of a move in the next few months.

Low rates have been doing their work on some sectors, with home building up almost 5 per cent in the quarter while consumers spent more on cars, communications, household goods and eating out.

Household spending power has found support from lower petrol prices, rising home values and a large stock of savings, which is helping offset sluggish growth in wages.

STILL NOT IDEAL

Australia's quarterly performance was handily ahead of most of its rich world peers, beating the UK's 0.3 per cent, a 0.4 per cent gain in the EU and a contraction in the United States.

Overall, the Australian Bureau of Statistics reported the value of goods and services produced was worth A$1.6 trillion ($1.25 trillion) in current dollars, or about A$67,800 for each of Australia's 23.5 million people.

Yet while the economy has not suffered a full blown recession since 1991, it has been travelling below its ideal pace of around 3.25 per cent for much of the past six years.

Annual growth of 2.3 per cent was still the slowest since late 2013, weighed by a retreat in mining investment and sharply lower prices for many of the country's resources.

That has seen unemployment slowly rise to near-decade highs at 6.2 per cent, squeezing wages and household incomes.

The closely watched measure of real net national disposable income actually fell 0.2 percent in the year to March, a result more usually associated with recessions.

Likewise, GDP measured in current prices grew a meagre 1.4 percent, a headache for the Liberal National government of Tony Abbott since it is nominal growth that drives the tax take.

Fiscal belt-tightening means the public sector has added nothing to economic growth for over two years, far below its historic annual contribution of 0.75 percentage points.

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