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Australia's growth run eases off
By Geoff Hiscock, CNN Asia Business Editor
SYDNEY, Australia (CNN) -- Drought, war fears, and strong imports are all weighing on Australia's economic growth rate as a stellar run in 2002 comes to an end. New figures released by the government's statistics body on Wednesday show gross domestic product (GDP) grew 0.4 percent in the December 2002 quarter, for an annualized rate of 3.0 percent. While that is lower than the 4 percent-plus growth rate seen earlier in the year on the back of a long housing boom, it is still among the highest in the world for advanced economies. Imports in the December quarter surged as a result of strong business investment, while exports lagged because of the drought and the lackluster global economy, economists said. Macquarie Bank global economist Richard Gibbs told CNN that it was clear Australia was now on a "lower growth trajectory," having pulled back substantially in the past 12 months. He said there was increasing evidence of the impact of drought on national output, while the composition of growth factors was changing from housing and construction more to business investment. The national commodity forecaster ABARE confirmed earlier this week that the drought is significantly affecting agricultural output, and predicted commodity exports would fall 4 percent to Aust. $87 billion in the 2002-03 financial year. In December, ABARE said it expected the drought would trim growth by 0.75 percentage points in 2002-03. Consumer confidence slows
Consumer confidence also has slowed recently under the weight of global tensions and weakness in the stock market. The Australian market's benchmark S&P/ASX200 index closed 1.32 percent lower Wednesday at 2776.0, its lowest level for three years. Key blue chips, including Telstra, AMP, News Corp and BHP Billiton, have all been pummeled in recent days. Last month, the consumer sentiment index compiled by Westpac Bank and the Melbourne Institute fell 7.8 percent month on month to 99.7, the lowest level since May 2001. (Full story) As expected, in the face of these negative indicators, Australia's central bank left interest rates on hold Wednesday for the ninth straight month. The Reserve Bank's benchmark cash rate remains at 4.75 percent, with sentiment gathering that the next move may be a cut, possibly by mid-year. Gibbs told CNN the case was growing for a rate cut to encourage business activity. However, HSBC Australia's senior economist Anthony Thompson said in a commentary after the release of the GDP figures that it was difficult to see a case for a rate cut unless the global outlook "deteriorates markedly further from here, and threatens the strong business investment outlook." Thompson said the next move was likely to be an increase in late 2003 of 0.25 percentage points, once the global recovery was more secure. Forecasts for growth in Australia this year are in the range of 2.75 percent to 3 percent, with HSBC suggesting it could rebound to 4.25 percent in 2004. On the currency front, Australia's dollar is at a three-year high against the U.S. dollar of about 61.7 U.S. cents. But most economists agree this has more to do with U.S. dollar weakness than any intrinsic strength for the Australian unit.
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