Growth figures good news for the Aussie Dollar

Unexpectedly strong household consumption, healthy expansion of Australia’s “old economy” industries and solid business and dwelling investment were the key drivers of the better than expected economic growth in the March Quarter.

The economy grew 4.3 per cent in the year to March. The economy has now grown at more than 4 per cent for twelve consecutive quarters, a feat not achieved for nearly 30 years. The March quarter growth of 1.1 per cent was well above the 0.4 per cent increase expected by the market economists and the Australian dollar surged over US60 cents on news of the unexpected strong GDP growth.

Given the above, most economist’s were surprised. In the lead up to the release of the GDP figures for the March quarter, economic data and indicators suggested the opposite.

Be prepared to see similar inconsistencies over the next few quarters. It is expected June-quarter GDP will be boosted by extra consumer spending ahead of the introduction of the GST. In the September quarter, consumer demand will fall away as price rises associated with the GST take effect, large income tax cuts and a boost to activity from the Olympic Games will offset this weakness for the quarter.

These latest figures on GDP is good news for interest rates as there appears no reason for the Reserve Bank of Australia to raise official interest rates in the short term.

It is also interesting to note what is happening in the US with recently released data. New data released showed a decline in May retail sales, which is indicating that the US economy is cooling which would suggest that the Federal Reserve may not have to tighten monetary policy again when it meets on June 27-28.