Annually, the economy grew 3.8% in the first quarter after climbing 2.8% in the prior quarter. The results topped analysts` consensus estimates of a 1.0% quarterly growth and a 2.9% annual expansion. The report said that the non-farm GDP increased 1.7% from the previous quarter. The terms of trade rose 1.4%, resulting in a 1.9% increase in real gross domestic income.
Consumption up, private investment surges
Total final consumption rose 1.3% on quarter and 4.0% on year, with household consumption expenditure climbing 1.5% in the first quarter, up from a 1.2% increase earlier.
The household expenditure contributed 0.9 percentage points towards growth in the first quarter, up from 0.7 percentage points in the December quarter.
Total private business investment spiked 7.6% sequentially, contributing 1.2% percentage point to the GDP. This compared to a 1.6% rise, with a 0.1 percentage point contribution in the previous quarter. The growth in the March quarter was due mainly to new engineering construction investment, which was 14.4% higher over prior quarter and 23.6% over the previous year. The figure was also influenced by the privatization of the state owned Telstra, the report said.
Total private gross fixed capital formation rose 5.8%, up from a 0.9% increase in the December quarter. Annually the growth was 7.1% in the first quarter.
Meanwhile, exports of goods and services rose 1.4% in the first quarter, up from 1.0% growth earlier, contributing 0.3 percentage point to GDP. Non-rural export goods rose 3.3% and services increased 2.0% in the first quarter.
Growth in imports of goods and services fell to 2.2% from 6.5% in the December quarter, contributing a negative 0.5 percentage point to GDP. Imports of goods increased 2.9%, while imports of services declined 0.7%, impacted by a fall in transportation services.
Mining, Construction Expand
Sector wise, mining output expanded 0.7% on quarter and spiked 13.0% on year in the first quarter. Production by manufacturing sector gained 3.4% on year, but fell 0.5% quarterly. Construction output rose 10.8% on year for a 2.5% gain from the prior quarter.
Electricity, gas and water supply production slipped 0.7% from last year and slumped 2.8% from last quarter. Wholesale trade, retail trade and accommodation, cafes & restaurants showed increases of 0.5%, 2.4% and 2.2% from the previous quarter. Transport and storage gained 7.5% on year and 1.8% on quarter.
Construction and financial and insurance sectors contributed 0.2 percentage point each to GDP in the first quarter, while manufacturing, electricity, gas and water supply contributed minus 0.1 point each.
Production in agriculture, forestry and fishing sectors fell 21.2% from a year ago, impacted by drought. In annual terms, farm GDP is projected to fall 20.9% in 2006-07 from the previous year. This may likely to make a negative contribution of about 0.6 percentage point to GDP, the report said.
Robust Activity
Recent economic data indicated acceleration in the economy, particularly in the construction and manufacturing sectors. The Australian chamber of Commerce and Industries said Tuesday, that the industrial trend strengthened in the June quarter, with solid performances by demand, production and exports. The recent momentum reflected an increased confidence in a steady interest rate outlook, and further optimism on the global demand outlook, the report said.
Australian Bureau of statistics said Tuesday that building approvals rose 8.1% on month in April, recovering from prior month`s fall of 10.5%. The housing industry expected that the speculation of a rate cut by the central bank would enable further recovery going forward.
RBA Keeps Cash Rate Target Steady
As widely expected by the market, the Reserve Bank of Australia left the official cash rate target unchanged at 6.25% on Wednesday. The central bank had raised the cash rate in November 2006 by 25 basis points to 6.25%, the third increase last year.
Analysts observed that the bank`s three interest rate hikes in 2006 have brought down the inflation back into the central bank`s target band of 2.0 to 3.0% for the first time in a year. The annual CPI narrowed to 2.4% in the March quarter and subsequently, the bank has revised down its inflation forecast for 2007 to 2.5% from 2.75%, initially estimated.
The tight labor market with rising wages and salaries and the pickup in household spending will likely push up the inflation according to the central bank. However, most economists expect the RBA to maintain a benign interest policy as long as the CPI stays within its comfort zone.
In the currency market, The Aussie improved slightly against the greenback amid the rate decision, but it surged to a new multi-year high near 0.843 following the release of the GDP report.
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