Australian Dollar Surges As Economy Unexpectedly Grows in Q1

Published June 3rd, 2009 - 05:45 GMT

The Australian Dollar surged against major currencies after the economy unexpectedly grew in the first quarter. Gross Domestic Product expanded 0.4% in the three months to March; economists had expected the metric to shrink -0.2%. In annual terms, the GDP growth rate fell to 0.4% from a revised 0.8% in the final quarter of 2008. The result bolsters RBA Governor Glenn Stevens’ argument that Australia will weather the current global downturn better than other industrialized countries.

Looking at the details of the report, consumption grew 0.5% and the external balance improved 1.4%. Private and government investment both declined. Aggressive stimulus measures are likely behind the impressive outcome: the central bank has brought interest down to the lowest in 49 years while the government has started to distribute more than A$12 billion in cash handouts to boost spending.

While the result is certainly encouraging, the important question going forward will be if Australia is able to sustain positive momentum once government stimulus dries up. Earlier today, the Treasury’s macroeconomics director David Gruen said he expects a “delayed” economic recovery in testimony to the a Senate committee but added the economy will grow at an annual pace of 4% in 2013-2017. Yesterday, the central bank kept interest rates unchanged at 3% for the second consecutive month but warned that additional easing may be needed given the prospect of medium-term deflation.

Following the report, Australian Prime Minister Kevin Rudd and Treasurer Wayne Swan offered their rendition of the “good cop, bad cop” routine: Swan boasted that Australia outperformed other advanced economies and called the GDP figures a “very strong outcome”; meanwhile, Rudd said that the economy was “not out of the woods yet” and cautioned that there is “no guarantee” that the economy will not contract in coming quarters. A reserved outlook appeared to win out, with Swan conceding that Australia has yet to feel the full impact of the global recession.

 



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