Australia’s Economy Expands 0.2%, Less Than Expected

Dec. 1 () -- Australia’s economy expanded at half the pace economists forecast in the third quarter as a stronger currency hurt exports.

Gross domestic product advanced 0.2 percent from the second quarter, when it rose a revised 1.1 percent, the Bureau of Statistics said in Sydney today. That compares with the median forecast for a 0.4 percent gain in a Bloomberg News survey of 21 economists.

The report reflects Reserve Bank of Australia rate increases aimed at cooling inflation sparked by a mining- industry expansion that Governor Glenn Stevens said this week will extend “over a longish horizon.” Tighter monetary policy, less housing aid and a gain in the local dollar this year have weakened consumer demand and slowed sales abroad.

“There is no doubt that the domestic economy is limping along at present,” Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney, said before the report. “Activity has been subdued with consumers keeping a tight rein on spending, while domestic businesses are also feeling the pinch of higher interest rates.”

Exports fell 2.4 percent in the quarter, subtracting 0.6 percentage point from GDP, today’s report showed. Household spending increased 0.6 percent, adding 0.3 percentage point.

2.7% Annual

The economy grew 2.7 percent from a year earlier, the report showed. Economists forecast a 3.4 percent expansion.

A private report earlier today showed Australian manufacturing contracted in November for a third month as the nation’s surging currency eroded demand for exports and higher borrowing costs curbed consumer spending.

The performance of manufacturing index fell to 47.6 from 49.4 in October, the Australian Industry Group and PricewaterhouseCoopers said in a survey released in Canberra today. A number below 50 indicates contraction. Capacity utilization fell to 74.6 percent from a 2 ½-year high of 77.4 percent, the report showed.

The RBA said in a release yesterday that loans provided by Australian banks and finance companies rose 0.1 percent in October from the previous month, when they were flat. Lending to companies fell 0.8 percent from September and 3.2 percent from a year earlier, the central bank said.

Australian business confidence fell for a second month in October as conditions deteriorated to the weakest in more than a year on declining profitability for retail and construction companies, according to a private monthly survey released Nov. 9.

‘Conservative Mood’

“Until the conservative mood of Australians changes, the economy will continue to struggle and the Reserve Bank will stay on the interest rate sidelines,” Sebastian said.

Even so, the nation’s employers added 106,200 jobs from July through September, the biggest increase in four years. That helped strengthen the local currency 15 percent against the U.S. dollar in the third quarter, according to Bloomberg data.

A stronger currency weighs on export sales, which account for about one-fifth of the country’s GDP.

“Exports growth softened but followed an exceptionally strong performance in the second quarter,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said before the report. “Shipments of coal and iron ore to China slowed as the Chinese scaled back steel production.”

RBA’s Outlook

In testimony last week to lawmakers in Canberra, Governor Glenn Stevens reiterated the central bank’s outlook for growth of about 3.5 percent in 2011 and 2012. He added that “it would take only pretty moderate growth in the second half of the year to achieve that forecast for 2010.”

Policy makers expect annual growth to accelerate, boosted by projects such as BG Group Plc’s $15 billion liquefied natural gas venture in Queensland, generating 5,000 construction jobs and potentially stoking inflation pressures.

BG, Chevron Corp., Royal Dutch Shell Plc and ConocoPhillips are among energy companies investing about A$200 billion in proposed LNG projects in Australia.

“On all the indications available, we are living through an event that occurs maybe once or twice in a century,” Stevens said in an address to a Committee for Economic Development of Australia event in Melbourne two days ago. “We obviously have to be wary of overheating.”

A report yesterday showed Australian home-building approvals snapped a six-month decline in October. The number of permits granted to build or renovate houses and apartments surged 9.3 percent from September, the Bureau of Statistics said in Sydney. That exceeded the median forecast for a 1.4 percent gain in a survey.

By Michael Heath