GDP up 0.7% in December quarter

The Australian economy posted solid growth in the fourth quarter of 2010, with the Australian Bureau of Statistics revealing gross domestic product rose by 0.7%, up from 0.2% in the September quarter.


According to the ABS, the main contributors to GDP were machinery and equipment and inventories, while non-dwelling construction activity was the largest negative contributor.


Meanwhile, Australia’s terms of trade are at their highest levels since the early 1950s, and mining and energy providers are ramping up production to meet demand from Asia.


However, economists say growth could slow sharply in the first quarter of 2011 when the bulk of flood and cyclone damage will hit output.


Treasurer Wayne Swan has warned of a possible contraction in the economy, but the downturn is expected to be short-lived.


The ABS data is broadly consistent with the Reserve Bank’s announcement that interest rates will remain on hold at 4.75% due to inflation and the mix of growth in the economy.


Interest rates rose sharply in the fourth quarter as banks hitched up mortgage lending rates in response to funding cost pressures, outpacing hikes announced by the RBA. Consumers grew cautious as a result and slowed down their spending.


The ABS has revealed retail sales rose just 2% year-on-year in January, while the independent retail sector reported a disappointing 0.7% year-on-year sales decline.


Based on sales, food retailing and department stores were identified as the strongest performing retail categories in January, with household goods, apparel and foodservice among the poorer performers.


While January sales for clothing chains grew by 3.6%, sales for non-chain clothing retailers fell by 16.4%.


Independent household goods retailers suffered a 4.7% decrease in year-over-year sales in January, slightly worse than the 1.5% fall for the chains.


Finally, small food retailers’ sales were flat compared with a year ago, while cafes and restaurants were almost flat.


Retail analyst Michael Baker says these were probably the best results in the independent sector given that food retail has become increasingly competitive.


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