By James Glynn
SYDNEY– Australia’s economy continued to heat up in the first quarter, growing by more than expected and at a pace faster than before the pandemic, charged by surging commodity prices, record confidence levels and a hiring boom.
Gross domestic product grew 1.8% in the first quarter from the fourth quarter of last year, and 1.1% compared with the same period a year earlier, well above expectations for growth of 0.6% on quarter and 1.5% on year, according to the Australian Bureau of Statistics.
The country’s terms of trade rose 7.4% over the quarter to its highest level since late 2011. Stronger export prices, particularly for iron ore and LNG, drove the gains.
The solid pace of expansion shows the economy is easily overcoming concerns linked to the scaling back of fiscal stimulus in recent months and challenges the Reserve Bank of Australia’s dovish policy guidance that interest rates won’t be raised until 2024 “at the earliest.”
Australia’s economic recovery is underpinned by the fact that it has the Covid-19 virus mostly under control, even though short-term lockdowns in major capital cities still happen frequently and the pandemic remains a major risk to the outlook.
“An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus, although this should diminish as more of the population is vaccinated,” Philip Lowe, Governor of the Reserve Bank of Australia, said earlier this week.
The RBA has indicated it will announce key decisions around its policy approach in July but there is wide debate about what it might do to its bond buying and yield-targeting programs.
Private investment rose 5.3% in the first quarter to be 3.6% higher compared with the same period a year earlier, the first on-year rise since mid-2018, the ABS said. Both business and housing investment increased, supported by government initiatives and improved confidence.
Gains in business investment were driven by an 11.6% rise in machinery and equipment, the strongest increase since late 2009. Dwelling investment rose 6.4% over the quarter.
Still, the outlook for the economy from here might not be so upbeat given a slow vaccination rollout nationally, according to some economists.
“With the vaccination rollout still slow and a fresh lockdown in Melbourne, the recovery is set to slow,” said Marcel Thieliant, economist at Capital Economics.
Write to James Glynn at email@example.com