Australia’s Economy Grows 0.1%

Australia’s economy grew last quarter at the weakest pace in eight years as household spending stalled, increasing pressure on the central bank to add to the biggest round of interest-rate cuts since a recession in 1991.

Gross domestic product rose just 0.1 percent from the second quarter, when it gained a revised 0.4 percent, the Bureau of Statistics said in Sydney today. The economy grew 1.9 percent from a year earlier.

The threat of Australia’s first recession in 17 years has prompted central bank Governor Glenn Stevens to slash borrowing costs by three percentage points since early September. Consumers and businesses are reeling from a 44 percent slump in the benchmark Australian S&P/ASX 200 stock index and the biggest biggest decline in home prices since 1978.

Exports and household spending neither added or subtracted to the change in GDP, while an increase in imports detracted 0.4 percentage point from growth in the quarter, today’s report said.

Reserve Bank of Australia Governor Stevens cut borrowing costs to a six-year low of 4.25 percent yesterday and said monetary policy is now expansionary.”

While Australia has been more resilient than other advanced economies,” recent evidence indicates a significant moderation in demand and activity has been occurring,” Stevens said.

Retail sales growth has slumped as turmoil on global financial markets deepens consumer pessimism. Sales have gained an average of 0.1 percent a month this year, according to government trend figures, down from 0.6 percent monthly growth last year.

Waning domestic demand is being partially offset by exports of commodities including iron ore and coal that have stoked profits at companies including BHP Billiton Ltd. and pushed unemployment close to the lowest in more than three decades. The jobless rate was 4.3 percent in October.

Exports may slow in coming months as the global economic recession deepens. China’s central bank cut its key interest rate by the most in 11 years last week and the government said forceful” measures were needed to arrest a faster-than- expected economic decline. China is Australia’s largest trading partner.

To buttress the economy, Prime Minister Kevin Rudd said last week he may allow the government’s budget to slip into deficit for the first time since 2002.

The government agreed with state leaders on Nov. 29 to spend A$15.1 billion ($9.7 billion), mainly on health and education, to generate 133,000 jobs. Rudd is also giving A$10.4 billion in cash grants to the elderly, first-home buyers and families, much of which will be paid this month.

Stevens and his board will probably cut the overnight cash rate target by the end of March to 3.5 percent, a rate last seen in the 1960s, according to Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney.

The chain price index, a measure of retail prices, climbed 8.8 percent in the third quarter from a year earlier, today’s report showed.

Australia’s Economy Grows 0.1%,
12/2/2008 7:47:42 PM