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Australian Economy Grows Weaker Than Forecast

Australian Economy Grows Weaker Than Forecast

The Australian economy expanded notably weaker than forecast by economists in the December quarter as business investment declined, the latest figures from the Australian Bureau of Statistics showed Wednesday.

The seasonally adjusted gross domestic product expanded 0.4 percent sequentially during the December quarter, slower than the economists' forecast for a 0.8 percent expansion. The September quarter figure was revised down from the previously estimated 1 percent.

The main drag on growth was private sector investment, which declined 1.5 percent from the previous quarter. It deducted 0.4 percentage points from the overall growth rate. Meanwhile, household final consumption expenditure added 0.3 percentage points based on its 0.5 percent growth.

Treasurer Wayne Swan said in a note today that the national accounts for the final three months of last year were solid given the world was facing the most dire conditions in the global economy since the height of the financial crisis.

Swan said the global turbulence will also inevitably flow through to government revenues and the budget bottom line. According to him, these headwinds have added to existing pressures from the sustained high dollar and the cautious consumer. Swan, who is also the Deputy Prime Minister, reiterated that the government remains determined to return the budget to surplus in 2012-13.

The statistical agency said that inventories and net exports contributed 0.3 percentage points each to the GDP. On the production side, financial and insurance services grew 1.4 percent quarter-on-quarter and manufacturing grew 1.2 percent. The mining sector expanded 0.7 percent.

Annually, the economy grew 2.3 percent, slightly weaker than the expected 2.4 percent. Terms of trade declined 4.7 percent quarter-on-quarter, but was up 7 percent compared with December quarter last year.

Earlier last month, the Reserve Bank of Australia trimmed the economy's growth forecast to 3.5 percent for the year ending June 2012 from the previous forecast of 4 percent.

Downgrading the outlook, the RBA said the move reflects the weaker outlook for global economic growth, with the uncertainty surrounding the European situation expected to weigh on household and business spending decisions.

RBA kept its benchmark cash rate unchanged at 4.25 percent for a second consecutive time on Tuesday, saying that it expects economic growth to be close to trend and inflation close to target in the coming months. The central bank delivered two consecutive rate-cuts towards the end of last year to support the economy amid sluggish global growth.

by RTT Staff Writer

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