Economy of Australia remains solid in spite of mounting future threats
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Australia Currency

Australia Currency

The economy of Australia has once again enjoyed a solid growth thereby outpacing its peers in the last quarter. But the tumbling prices of export and marked slowdown in China left them with very little time to celebrate. These factors actually resulted in a cut in the Australian rates of interest so as to safeguard their growth in future.

The Report:

According to the government data that was released on Wednesday, the gross domestic product or the GDP of Australia showed a rise of 0.6 percent in the second quarter. It was a moderation of the last quarter though that had showed an exceptional jump of about 1.4 percent. That had resulted in a rise of the GDP of Australia by a brisk 3.7 percent as compared to the data evaluated in the second quarter of the year 2011. The domestic demand had particularly shown a strong rise of about 5.9 percent. But as the economy of Australia had gained momentum then, the situation ahead in the future looks pretty grim. This is mainly due to the fall in the prices of the key exports like the drain in the incomes of iron ore and the cooling of the once red hot sector of mining.

The closing in on the rate cuts:

Markets have shown a much more somber tone resulting in the narrowing of the odds for a cut in the Australian rates of interest as early as in October, following the easing in the months of May and June. The futures of Interbank have placed a probability rate of about 64 percent on the probability of a move in the month of October. They have also placed expectations for two fully priced cuts of 3 percent by the end of this year. The swaps indexed overnight have put the Australian rates of interest at 2.82 percent in a period of 12 months. The biggest export earner of Australia, spot iron ore, amounting to about A$60 billion in a year, has startled by nearly one-third since the early part of July. Some of the miners are already scaling their expansion plans for the year 2013.

Outperformer as of now:

In spite of all this, the data on Wednesday showed that the economy of Australia is still outperforming some of its more developed peers. The annual growth of Australia has been marked to 3.7 percent as compared to 2.3 percent in the US, and a fall of 0.4 percent and 0.5 percent in Europe and Britain respectively. Overall it can be said that the GDP of Australia for a period of twelve months in June has reached to A$1.47 trillion amounting to about $1.5 trillion. The main driver of growth in the second quarter of the year has been household consumption: with a rise in the expense of new vehicles by almost 10 percent amounting to nearly 23 percent for the year. The role of business investment has been quite modest in the growth after an unbelievable performance in the first quarter with the engineering spending up to about 60 percent for the year. The expense of the public has also been surprisingly upbeat even though the Labor government has committed to a tightening of the fiscal policy so as to reach a surplus in the budget the following year.

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