Asia Times: Economic growth stronger than forecast



	March 04, 1999	atimes.com

Oceania

Economic growth stronger than forecast

SYDNEY - Australia's growth in the December quarter was stronger than expected, with gross domestic product rising 1.1 percent, adjusted. This meant the economy grew at 4.7 percent over the year.

Economists had forecast a rise of 0.6 percent in Decemberquarter GDP.

Shane Oliver, chief economist with AMP Asset Management, said the data were much stronger than expected but also confirmed that inflationary pressures remained low.

''The price deflator actually fell slightly in the quarter. You've got a combination of strong growth and very low inflation - which is a good combination.

''The mix of growth is a bit of a concern. There is an imbalance in that there is very strong consumer spending but against that, business investment is weakening,'' he said.

Dr Oliver said the data, while strong, were not likely to turn the Reserve Bank's mindset around to a tightening of interest rates. ''I think the market would look at it and say, well we had a suspicion it may be a bit stronger than we thought but againstthat the housing sector and business is a bit soft."

Michael Straughan, domestic economist with Macquarie Bank, said that the quarterly numbers seem to have been distorted significantly by the public sector. ''That seems to be where all the growth is coming from,'' he said.

''I think what this does is confirm we have a slowing economy here as far as the private sector goes, which I think is what we need to concentrate on. "

Straughan said the concern was that ''household savings are diminishing and diminishing rapidly so that the consumption can't be maintained, and there is very little else in private demand that is actually growing. We are going to certainly get that slowing economy that everyone expects in 1999."

ANZ chief economist Saul Eslake said the growth result did not add to the case for a further cut in interest rates. He said the number was obviously stronger than expected and it suggested that the economy continued to grow strongly in the final quarter of 1998.

''The fact that growth was fairly strong in the December quarter is likely to keep the Reserve Bank on hold,'' he said. ''Though it is certainly possible to read into these figures signs of slowing private sector demand in both categories of investment to begin with, but potentially in consumer spending as the year unfolds.

''However, underneath the figures the element of surprise was really in government spending,'' Eslake said. ''Private demand, particularly investment spending, wasactually quite weak, not only business investment but housing investment as well."

(Asia Pulse)