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Issue #584 | Breakbulk Quarterly

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2014 Media Kit
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Australia economy on a rising tide as spending, exports swell

By: | at 01:55 PM | Channel(s): International Trade  

Australian retail sales surged by the most in almost a year in January and exports jumped to record highs, clear evidence the resource-rich economy is stepping up a gear even as a boom in mining investment cools.

The figures from the Australian Bureau of Statistics were packed with milestones. A 1.2 percent rise in retail sales blew away forecasts of a 0.5 percent gain, and lifted annual sales growth to its highest since late 2009 at 6.2 percent.

Likewise the country’s A$1.4 billion ($1.26 billion) trade surplus was the largest in almost three years as exports climbed 3.7 percent and dwarfed analyst estimates of A$400 million.

The reaction was immediate, with the Australian dollar spiking nearly half a U.S. cent to $0.9024. The futures market moved to price out almost any chance of another cut interest rates <0#YIB:>.

“People are choosing to spend more borrow more and save less, and that’s all too the good,” said Michael Blythe, chief economist at Commonwealth Bank of Australia.

“That’s a key transmission mechanism of monetary policy and it shows the stimulus is working,” he added. “The next move in rates is now likely to be up, albeit not until late this year.”

The upbeat news strongly supported the Reserve Bank of Australia’s (RBA) decision last month to take another rate cut off the table and foretell a steady period for policy.

RBA Governor Glenn Stevens will have his own chance to react to the news when he appears before a parliamentary committee on Friday, and he’ll have to good reason to sound optimistic.

“The jump in sales and exports has got the current quarter off to a flying start when it comes to economic growth,” added CBA’s Blythe. “It’s been a very nice run of news.”

Shopping Binge

The revival in retail spending was especially important as the A$270 billion retail sector accounts for 17 percent of Australia’s A$1.5 trillion in annual gross domestic product (GDP) and is the second-biggest employer after the health industry, with 10 percent of all jobs.

The increase in sales in January was broad based, with gains of 2 percent for eating out, 1.1 percent for clothing and 1.5 percent for households goods. Even long-struggling department stores saw sales climb 2.6 percent.

Indeed, it was a revival in consumption and a sustained surge in resource exports that lifted Australia’s economic growth to a stronger-than-expected 2.8 percent in the final quarter of 2013, the fastest pace in a year.

Exports continued their stellar run in January to hit a record A$29.8 billion, with farm goods up 5 percent and metal ores such as iron ore rising 3 percent.

Export growth for the year to January accelerated to 20 percent, the fastest in almost three years, as the hundreds of billions spent on mining projects turns into actual output.

That in turn will help fill the hole left as mining investment cools. Net exports added 0.5 percentage points to GDP last quarter, and no less than 2.4 percentage points for all of 2013, essentially accounting for the bulk of growth that year.

“Clearly this is strong data,” said Su-Lin Ong, a senior economist at RBC Capital Markets. “The export story is good and has been that way for some time now, whether the local dollar is going up or down.”

“It’s got the first quarter off to a great start and will surely please the RBA.” (Reuters)