Australia’s economy has shocked economists and commentators by expanding at its fastest annual rate in four-and-a-half years, but the growth is mainly limited to “big business”.
A blockbuster set of gross domestic product numbers showed the economy rose 1.3% in the three months to March, more than double the pace expected by economists, and quickening from a revised 0.6% in the final three months of 2011.
In annual terms, real GDP growth surged by 4.3%, well above market expectations which centred on a rise of 3.3% year on year.
Treasurer Wayne Swan described the numbers as “stunning” and said they showcased the “rock-solid economic fundamentals” of the economy, painting an “extraordinary picture” of “exceptional” growth.
Paul Bloxham, chief economist at HSBC, told SmartCompany he was “certainly surprised” the GDP figures were as strong as they were.
“In broad terms, the figures are saying the economy is still in very strong shape and that has certainly been our narrative.
“Unemployment fell to 4.9% in April, which is around full employment, and those solid numbers were reflected in GDP figures as well.”
Bloxham says HSBC continues to be upbeat about the outlook for the economy for the remainder of the year.
“Overall, the economy is looking fairly strong, given that the Reserve Bank of Australia has cut interest rates and the Australian dollar is off its peaks. We are expecting to see a rebalancing of growth in the second half of the year and this might take some pressure off those sectors which are underperforming,” he says.
Tim Waterer, senior trader at CMC Markets, was equally shocked, describing the GDP result as “like a bolt from the blue” which sent the Australian dollar soaring.
“GDP serves as an economic health check and the Australian economy passed with flying colours,” Waterer says.
“If the RBA was tempted to go with a 50 basis point cut on Tuesday, they will now be breathing a collective sigh of relief that they opted for just the .25% cut.”
Waterer says the RBA is now unlikely to cut rates any further.
“The GDP result combined with a stabilisation of events in Europe could see the RBA in ‘pause mode’ for several months on rates,” he says.
However, the Council of Small Business warned the booming economy was limited to those in big business.
“They are good figures and it reinforces that we have a big business economy and we have had one for a long time now,” says Peter Strong, executive director of COSBOA.
“It is good for big business. But it still does not help those sectors where they are struggling and sectors where big business dominate in a way that is not good.
“I am talking about retail particularly and the finance sector. I am not sure how much the figures are shared across the business economy. I tend to think it is not; it is the classic multi-speed economy.”
Industry and state breakdowns of the GDP figures highlighted the divided nature of growth: Mining surged by 9.2% year on year; followed by financial and insurance services, which was up by 5%; and, unexpectedly, the retail sector rose by 2.7% year on year.
On the flip side, there were falls in manufacturing, which dropped by 0.3%, and utilities, which fell 2.4% for the same period.
“There are clear signs of uneven growth in the economy and you see that most closely in the state break up,” says Bloxham.
The growing divide between the resource and non-resource sectors of the Australian economy was a concern for the Housing Industry Association, following the release of the GDP figures.
“Once we drill down, it really is a story about the mining states, which are headlining economic production versus the others, which continue to do it tough,” said HIA senior economist Andrew Harvey.
“Quarterly growth in Western Australia and the Northern Territory was phenomenal, while NSW went backwards.”
Harvey said the good news was that consumers were spending again and the GDP growth figure should help confidence alongside the RBA rate cut.
“However, there’s no doubt the challenges posed by the multi-speed economy will continue to see non-resource sectors face significant headwinds,” he said.