Australia's Economy Logs Solid Growth -- Update

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 stronger exports.

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.

Economists had expected 0.9% growth on quarter and a 1.9% on-year growth. First quarter growth was left unchanged at 0.3% on-quarter.

The upbeat data reflect rising business confidence in Australia, which has played out in the much stronger employment growth and rising non-mining investment, in recent months. The solid second quarter GDP outcome was supported by strength in exports and public spending, led by infrastructure construction.

Treasurer Scott Morrison said the solid growth will help the government improve on budget deficit forecasts published in May, helping the country retain its AAA sovereign credit rating.

"I anticipate that based on these figures today and other data that has come that we will achieve better than the budgeted outcome for the fiscal year of 2016/17," he told reporters.

The strong growth in the quarter 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 the thirteenth month in a row.

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

Energy exports are rising sharply after a lengthy period of expansion in capacity, with large new liquefied natural gas plants coming online across the country's north.

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

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

The Australian dollar, which has risen to its highest level in over two years in recent months could also 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.

Paul Dales, chief economist at Capital Economics said the data overstates the pace of growth. An average of GDP growth in both the first and second quarters shows a growth rate of around 0.6%. That pace of growth will mean the RBA's expectation of growth 3.0% next year "is far too optimistic," he said.

Rob Taylor in Canberra contributed to this story.

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

(END) Dow Jones Newswires

September 05, 2017 23:06 ET (03:06 GMT)