Australia's Economy Builds on Winning Streak

By James Glynn Features Dow Jones Newswires

Australia's economy shrugged off the effects of a cyclone in March to grow strongly in the second quarter, helped by soaring business confidence and higher commodity prices.

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Gross domestic product grew by 0.8% in the second quarter from the first quarter and 1.8% from a year earlier, data showed Wednesday.

That was close to expectations, after economists had forecast 0.9% growth over the quarter and 1.9% growth over the year. And it was a strong result compared with first-quarter growth, which was left unchanged at 0.3% on-quarter.

The upbeat data reflect rising business confidence in Australia, which has played out in much stronger employment growth and rising non-mining investment.

It also supports the optimistic outlook offered by the Reserve Bank of Australia this week, even though it kept official interest rates unchanged at a record-low 1.5% for a 13th month in a row.

In a speech Tuesday in Brisbane, RBA Governor Philip Lowe said he has been encouraged by recent strength in investment and full-time jobs growth, something the RBA has been anticipating for some time.

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The solid second-quarter GDP result was supported by strength in exports and public spending, led by infrastructure construction.

Iron-ore prices, still an important factor in economic growth, have been higher than expected over recent months, fanning confidence and generating added income for resource companies.

Still, lingering pessimism among consumers continues to cloud an otherwise sunny outlook for the economy. Record household debt combined with slow wages growth are keeping Australians' cash in their wallets.

A further complication is coming from the Australian dollar, which has risen to its highest level in over two years in recent months. That could weigh on exports, economic growth and inflation.

The headwinds confronting the Australian economy are significant enough to keep interest rates low for some time yet.

Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

September 05, 2017 23:23 ET (03:23 GMT)