News Room - Business/Economics

Posted on 02 Jun 2010

Australian economy slows in first quarter

Australia's economy slowed in the first quarter as a government scheme to construct a new building in every school papered over a drop in business spending.

 

The country's $1 trillion economy expanded 0.5 percent from the fourth quarter, when growth had rocketed 1.1 percent, according to Australian Bureau of Statistics figures released Wednesday. Gross domestic product expanded 2.7 percent for the year through March.

 

Australia's economy contracted in the last three months of 2008 as the global financial crisis unfolded, but has grown continuously since then with the help of billions of dollars in government stimulus spending.

 

News of the slowdown in the first quarter comes a day after the central bank kept its key interest unchanged following a series of rate hikes, citing increased caution among investors in the wake of Europe's sovereign debt crisis.

 

Treasurer Wayne Swan said a government program that is providing a new building to every Australian school compensated for a fall in private sector spending during the quarter.

 

Public investment grew 11.6 percent in the March quarter and 39.5 percent for the year. Private investment fell 2.4 percent in the quarter and lost 0.4 percent in the year through March.

 

Swan said consumer spending had increased 0.6 percent in the latest quarter and was up 3.1 percent over the year before despite the stimulus from government cash handouts to most Australians drying up last year.

 

He said that Treasury estimated the government's winding back of stimulus spending had shaved 0.1 of a percentage point off growth for the latest quarter.

 

"What we see clearly today is that we have an economy that is in transition from the support provided by policy stimulus to private demand," Swan told reporters before flying to a Group of 20 meeting of finance ministers in South Korea.

 

Stephen Walters, chief economist of investment bank J.P. Morgan, said the figures indicated a private spending drought in the quarter.

 

"Luckily the public investment kicked in and more than filled that void," he said.

 

Walters said the surge in public investment had prevented the economy from contracting.

 

Exports for the quarter fell. But Swan said they would have increased if not for flooding in northeast Australia which had interrupted coal shipments.

 

Stephen Halmarick, head of investment markets research at Colonial First State, a wealth management company, expected large increases in Australian exports of energy and minerals would lift economic growth for the remainder of 2010.