Tuesday, August 11

Australian growth forecasts lifted as trade skyrockets


MELBOURNE: Australia’s economy has received a huge shot in the arm from surprise strength in international trade fuelled by surging demand from China and higher prices for the nation’s key resources, reported the Herald Sun.

BETTER TIMES AHEAD: Australia’s economy is slated for a bright future as its intenational trade figures point to such a scenario.

BETTER TIMES AHEAD: Australia’s economy is slated for a bright future as its intenational trade figures point to such a scenario.

The official trade surplus for June shocked economists when it came in at a bumper A$3.539 billion, nearly double expectations for a A$1.8 billion result.

Economists said the unexpected result demonstrated that demand for Australian iron ore and coal remained strong and was, so far, unaffected by a slower Chinese economy.

It prompted upgrades to forecasts for Australia’s economic growth.

Westpac chief economist Bill Evans said he now expected June quarter gross domestic product growth of about one per cent, after previously forecasting a 0.8 per cent gain.

However, Evans said the trade figures reflected ‘a perfect storm’ with surging export growth of seven per cent, seasonally adjusted, but only flat import growth ‘implying domestic spending is softening’.

“We’re getting a huge boost from the terms of trade and the compound investment growth in mining, so the capacity story’s picked up, the prices are up, but on the other side the import story is down,” he said.

TD Securities strategist Roland Randall said the good news for the June quarter gross domestic product (GDP) was that much of this month’s rise was not only driven by higher prices but bigger volumes.

JP Morgan economist Ben Jarman suggested concerns about a slower Chinese economy had been overdone.

“People have been worrying that perhaps the slowdown would happen a bit too quickly and that would hurt exports,” he said.

“But on the basis of today’s data, that story seems to be tracking very well.” AMP Capital Investments chief economist Dr Shane Oliver said the rising export volumes showed demand in China was remaining ‘pretty strong’.

“You can’t assume that it’s going to continue rising at the pace that we saw in June but, nevertheless, the broad picture is still a fairly good one.” Oliver also raised his forecast for June quarter GDP to about 0.9 or one per cent, and said a strong result could bring back the case for an interest rate rise in September.

“I’d say the risk is still later this year, but you can’t entirely rule it out,” he said.

Official house price numbers also surprised pundits.

ABS figures showed Australian house prices rose 3.1 per cent in the June quarter, beating expectations for a two per cent gain.

But ANZ economists said the figure was still consistent with their view that house prices growth would ease through 2010.

“Monthly data suggests further weakening ahead, although outright price falls are unlikely,” they wrote in a research note.