The Australian economy bounced back in the third quarter of the year as mining output jumped by 5.2% after declining in the previous quarter. GDP expanded by a stronger-than-expected 0.9% q/q in the July-September period, above estimates of 0.8%. In the second quarter, the economy had stagnated to just 0.2% q/q as the slowdown in China had hurt exports. Compared to the same time last year, GDP was up 2.5% during the quarter.
The jump in exports contributed the most to quarterly growth, adding 1.5% to GDP growth. In the previous quarter, it had deducted 0.6% from the growth rate. Household consumption was also stronger from the previous quarter, increasing by 0.7% q/q. However, business investment dropped sharply, falling by 4.0% q/q, reflecting the continued decline in mining investment.
The overreliance on mining activity and domestic consumption highlights the slow progress Australia is making in rebalancing growth away from resources to non-mining production. But despite the slump in commodity prices, resource exports have not been as badly hit as expected and this is supporting the economy as it attempts to transition away from mining activity. The housing sector is also performing well and building approvals were up 12.3% y/y in October.
The pick-up in growth has helped bring down unemployment to 5.9%, while inflation remains below the Reserve Bank of Australia’s target of 2-3%. In its last monetary policy meeting on December 1, the RBA kept rates on hold at 2% for the 7th consecutive meeting as low interest rates continue to spur borrowing and spending in the economy. However, it said that it could cut rates further should demand weaken, keeping the possibility open going into 2016.
The Australian dollar continued to firm for a third day on Wednesday, reclaiming the 0.73 handle against the US dollar in the process. A run of positive data over the past few weeks has dampened expectations of future rate cuts by the RBA and this has helped the aussie recover from 6-year lows of 0.6907 set back in August. The aussie was last trading at 0.7331 in mid-European trading. It was also higher against its New Zealand counterpart, topping the 1.10 level but struggling to stay above it.
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