Tuesday 28 March 2017

Australia feels bite of floods and fall in demand

Shoppers enter and exit Wesfarmers Ltd's Kmart store in Innaloo, a suburb of Perth, Australia. The economy shrank in the
first quarter by the most in 20 years
Shoppers enter and exit Wesfarmers Ltd's Kmart store in Innaloo, a suburb of Perth, Australia. The economy shrank in the first quarter by the most in 20 years

Michael Heath

Australia's economy shrank in the first quarter by the most in 20 years as floods hurt exports, even as stronger business investment underscored the central bank's forecast for a rebound in the second half of the year.

GDP fell 1.2pc from the previous three months, when it rose a revised 0.8pc, Australia's Bureau of Statistics said in Sydney yesterday.

Exports slumped 8.7pc, subtracting 2.1 percentage points from GDP growth, the report showed, while machinery and equipment spending jumped 6pc, adding 0.4 of a point.

The nation's dollar rose after the report showed the contraction was smaller than a drop of as much as 2pc that economists including Goldman Sachs and Partners Australia Pty had forecast.

While Reserve Bank of Australia (RBA) governor Glenn Stevens has held interest rates at 4.75pc for the past five meetings to help Queensland state recover, investors yesterday boosted bets that he'll raise borrowing costs by August.

"The market was braced for a really big negative so it's a bit of a relief," said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney.

"The report looks mostly to be reflecting the impact of the Queensland floods on exports; outside of exports, domestic demand is actually pretty resilient."

However, global growth, including the economies of some of Australia's biggest trading partners, has continued to show signs of weakening.

China's manufacturing expanded at the slowest pace in nine months in May, a survey of companies released last night showed.

India's growth in three months to March 31 was the weakest in five quarters, and Japan's industrial production rose less than economists forecast in April, reports showed this week.

Those three countries accounted for 51pc of Australia's total exports so far this year. (Bloomberg)

Indo Business

Promoted articles

Also in Business