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Australia GDP seen robust in Q4 before pullback

SYDNEY: The Australian economy was chugging along at a solid pace in late 1999, helped by free-spending consumers, figures on Wednesday are expected to show.

But the fourth quarter gross domestic product report is considered old news by financial markets preoccupied with a recent string of soft data releases for early 2000.

A Reuters survey of 21 economists found GDP, the broadest measure of how the economy is travelling, is expected to have risen 1.1 percent in the December quarter, for an annual pace of 4.0 percent.

That is slightly softer than the September quarter, although most analysts expect downward revisions to the original 1.6 percent quarterly growth pace and 4.5 percent annual growth.

As has been the case for the past two years, consumer spending was the driver of growth in the fourth quarter, unperturbed by the Reserve Bank of Australia's first rate rise in the current cycle of a quarter percentage point in early November.

"Pretty much every data release through the fourth quarter was stronger than expected, and figures like the NAB survey also say the economy was running red-hot into late 1999," said Deutsche Bank senior economist Richard Yetsenga, who is forecasting growth at the top end of the range at 1.5 percent.

BRISK SPENDING IN Q4

Robust employment growth helped to underpin household consumption and consumer confidence through most of the fourth quarter, though retail sales dipped in December. Spending on cars bounced back from weakness earlier in the year.

On the softer side, construction and private capital expenditure probably detracted from overall growth.

More recent figures suggest that the economy came off the boil in early 2000, as retail spending dipped and consumer confidence felt the shock of the RBA's second rate rise in February. The rate rises will likely trim spending in coming months, before a round of income tax cuts kicks in in July.

"There probably hasn't been enough attention paid to some of the weaker areas in the fourth quarter," said Commonwealth Bank chief research economist Michael Blythe, citing weakness in building and a detraction from both public and private-sector stocks. He expects a 0.9 percent rise in the December quarter, and less than that in the current quarter.

"But these numbers are probably going to be viewed as ancient history," after last week's rebound in employment took the edge off softer spending figures, Blythe said.

Annual GDP growth of about four percent is not expected to have any impact on plans at the RBA for another modest rise in official rates, pencilled in for April or May.

"The RBA's apparent determination to be pre-emptive will likely see it highlight any significant gap between demand and output growth," rather than GDP growth itself, said Macquarie Bank economist Andrew Hanlan. -Reuters