GDP grows by 0.5% in March quarter: Economy Roundup

Australia’s gross domestic product grew by an expected 0.5% during the March quarter, seasonally adjusted, according to the Australian Bureau of Statistics.

On an annual basis, GDP rose by 2.7%, with growth in the recent quarter boosted by an 11.6% increase in public investment and a 0.6% increase in household expenditure. A fall of 0.6% in private investment slowed some growth.

Terms of trade rose by a seasonally adjusted 4.2% on a quarter-on-quarter basis, with a rise on an annual basis of 0.3%.

According to a Bloomberg survey of 24 different economists, GDP was set to grow from anywhere between 0.3% to 1%. The average forecast was for growth of 0.5% for the quarter, and for 2.4% for the year to March.

The yearly result was given a slight boost to an upward revision of the December quarter figures, with that quarter’s growth now at 1.1%, up from 0.9%.

CommSec economist Craig James said the growth was “not great”, but that Australia’s economy is still strong.

“No doubt the expiry of government grants and the tightening of monetary policy have played a significant part in growth being more subdued than in the December quarter. However, annual growth of 2.7% is still healthy given we are in the early stages of the economic recovery.”

“Without a doubt Australia currently has one of the strongest economies in the advanced world. Housing construction is lifting, the unemployment rate is sliding, confidence levels are consistently high, public debt levels are healthy and economic growth is heading back to trend. While other countries have been attempting to kick-start their economy, Australia has moved into third gear.”

Meanwhile, Insurance Australia Group has cut its full-year margin guidance due to a one-off $365 million charge from its British division due to an increase in injury claims.

The company said the charge will have a 5% impact on the group’s insurance margin. It also includes a $60 million net charge for new reinsurance to reduce exposure to more claims.

“As we’ve flagged for the past 12 months, the increase in bodily injury claims is a problem confronting the entire UK motor insurance industry,” IAG managing director and chief executive Michael Wilkins said in a statement.

“In light of this and a significant deterioration in claim payments in the opening months of calendar 2010, a further review of our UK claim reserves was undertaken.”

“This has revealed that a significant revision to our reserves is required. The deterioration now extends to underwriting years since 2007 and impacts most classes of motor business.”

Shares flat after Wall Street decline

The Australian sharemarket has opened flat today due to weak results from Wall Street, where investors have been spooked over renewed fears of the European debt crisis.

The benchmark S&P/ASX200 index was up 6 points or 0.14% to 4419.3 at 12.20 AEST, while the Australian dollar opened lower to US83c.

ANZ shares lost 0.6% to $22.17, while Commonwealth Bank shares also lost 0.3% to $50.82. Westpac declined 0.9% to $22.55 as AMP lost 0.2% to $5.61.

Australian Council of Trade Unions president Jeff Lawrence has told AAP the group will look for more tax reform even though the Government faces mounting pressure over its upcoming super profits tax.

“We want to see action on our other proposals including far more consistent tax treatment of investment income,” Lawrence said.

“The regressive effect of a proposed flattened personal income tax scale, and an absence of firm proposals to stem tax avoidance through private trusts and companies are areas of weakness.”

German construction group Bilfinger Berger is reportedly very close to finalising plans for the $1.43 billion float of its Australian branch.

A final decision is set to come within days with a prospectus to be lodged within the next two weeks, one source has told Reuters. Brokers involved in the float are reportedly valuing the business between $1.4-1.75 billion.

The Federal Government and the mining industry could have possibly reached some type of deal regarding the proposed resources super profits tax, according to Newcrest Mining chief executive Ian Smith.

“Our differences are not insurmountable,” Smith said in a speech. Resources minister Martin Ferguson also said a compromise could be made.

“The government wants to continue to work with you in a constructive manner,” he said. “We are looking at a way to address your concerns, for example through generous transition arrangements.”

US manufacturing grows for tenth month straight

Overseas, manufacturing in the United States has grown for a tenth consecutive month during May with spending at its fastest pace in nearly 10 years, according to a private index.

The Institute for Supply Management index of national factory activity dropped to 59.7 from 60.4, but was still above the 50-point level separating expansion from contraction.

“Thus far there is no evidence of a significant negative hit to export orders from the euro zone crisis or a prospective easing in the Chinese economy,” Brian Bethune, chief US financial economist at IHS Global Insight, told Reuters.

On Wall Street, stocks dropped as investors remained wary of Europe and its debt-laden economies, and were hit with news that the oil spill in the Gulf of Mexico could continue for another three months. The Dow Jones Industrial Average lost 112.61 points or 1.11% to 10.024.02.

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