Australian economy grows 0.7% despite floods

Thursday, 3 March 2011 01:19 - - {{hitsCtrl.values.hits}}

SYDNEY, (AFP) -Australia’s economy expanded 0.7 percent in the last quarter of 2010, official figures showed Wednesday, but the full impact of disastrous floods has yet to emerge.

The statistics bureau said the quarter-on-quarter figure was up from a revised 0.1 percent in July-September, the lowest since the depths of the financial crisis. GDP was up 2.7 percent from the same period a year earlier.

Treasurer Wayne Swan said heavy rains that drenched northeastern Australia in the quarter, culminating in widespread floods in December and January, shaved 0.4 percentage points off growth by swamping coal-mines and farmland.

“These numbers illustrate that despite some soft spots, our economy is fundamentally strong with an enviable unemployment rate, a bumper pipeline of investment and a fiscal position amongst the strongest in the developed world,” he said.

The Australian Bureau of Statistics (ABS) said most growth came from private spending on machinery and equipment, and inventories. Terms of trade, which compare the prices of imports and exports, rose 1.1 percent.

The bureau added that Australia would not feel the full effects of the floods, which were followed by a massive cyclone, until the current quarter, when Swan has warned the disasters could put growth into reverse.

“While the floods have had some effect on the December quarter estimates, it is expected that the more significant economic impact of this... will be reflected in the estimates for the March quarter 2011,” the ABS said.

Swan has said Australian growth, based on roaring commodities exports to fast-growing Asia, will be “thumped” by the floods, which covered an area bigger than France and Germany combined and paralysed major city Brisbane.

The treasurer said flooding would shave 0.5 percentage points off growth for the current fiscal year. He earlier said the coal industry lost about Aus$5 billion ($5 billion) in exports and agriculture could take a Aus$2 billion hit.

Analysts gave a mixed reaction to the latest growth figures, which were slightly below expectations. ICAP economist Adam Carr called it a “fantastic result”.

“It dispels this ridiculous notion that the economy ground to a halt in the second half of last year,” he said.

But Macquarie economist Brian Redican said the figures showed softness in the economy, noting muted household spending and that inventory build-up will not be sustained.

“I don’t think it really suggests the economy is thumping along,” Redican said.

Australia was the only major Western economy to avoid recession during the financial crisis thanks mainly to its coal and iron ore exports and large-scale emergency stimulus.

It now has unemployment of just 5.0 percent and a currency at historic highs against the US dollar, although interest rates have risen rapidly since the crisis and are currently at 4.75 percent.

Plans for a one-off, Aus$1.8 billion tax to help pay for the floods damage, and keep the government on track to balance the budget by 2013, have passed the lower house and are currently before the Senate.