Australian growth slows amid mining cutbacks

File photo of the Sydney Harbour. The Australian economy grew slower than expected.

Story highlights

  • A rise in export volumes helped support the Australian economy in the first quarter of 2013
  • But growth slowed as mining companies slashed spending and investment
  • Figures released Wednesday showed GDP rose by a weaker than expected 0.6%
A rise in export volumes helped support the Australian economy in the first quarter of 2013 but growth slowed as mining companies slashed spending and investment.
Figures released by the Australian Bureau of Statistics on Wednesday showed gross domestic product rose by a weaker than expected 0.6 per cent in the three months through March from the previous quarter.
The annual gain was 2.5 per cent, down from 3.2 per cent in the December quarter and the slowest expansion since the third quarter of 2011.
Market expectations had been for a rise of 0.7 per cent on the quarter and 2.7 per cent over the year.
The figures underscore the challenge facing the world's 12th-largest economy as it attempts to transition from the resource investment boom that has powered growth for the past decade but is now coming to an end.
In an attempt to stimulate growth in non-mining parts of the economy the Reserve Bank of Australia has lowered its benchmark interest rate by 2 percentage points since November 2011 to a record low of 2.75 per cent. The central bank hinted on Tuesday that there could be scope for further monetary easing.
However, interest-rate sensitive sectors of the economy such as consumer spending and house building have been slow to respond to easier monetary policy, while industries such as tourism and manufacturing have continued to struggle with the strength of the Australian dollar.
Pimco, the world's biggest bond fund, has called on the RBA to cut interest rates further, saying looser monetary policy will be needed to support domestic demand as the resource boom peaks. It estimates resource investment was responsible for 60 per cent of Australia's economic growth last year.
Wednesday's national accounts showed exports had been the main contributor to economic growth, increasing by 1.1 per cent in the March quarter and 8.1 per cent over the past as years of heavy investment translated into higher exports and production.
Growth was driven by rising exports of iron ore and coal as big resource companies such as BHP Billiton, Rio Tinto and Fortescue Metals ramped up production. This was also reflected in figures that showed 1.5 per cent rise in mining output in the quarter.
However, the rise in exports was partially offset by sharp fall in mining investment which contributed to a 4.3 per cent decline in new private business investment. Large resource companies are under pressure from shareholders to lower spending on new projects because of an uncertain outlook for commodity prices as the Chinese economy transitions
The slowdown in the mining sector was further highlighted by an 11.2 per cent fall in minerals and petroleum exploration spending in the quarter and 5.7 per cent slide in engineering construction, which is dominated by large resource projects.
Outside of the resource sector, household spending rose by a weaker than expected 0.6 per cent in the quarter. There was also a slight increase in household savings ratio to 10.6 per cent as cautious consumers cut back on spending.
Overall domestic demand contracted by 0.3 per cent in the quarter -- the weakest outcome since 2009 -- because of the sharp fall in business investment and a moribund housing market.
Economists at Westpac said the said the national accounts showed the Australian economy had lost momentum during 2012 and into 2013 and further rate cuts were needed to stimulate activity.
"Demand is materially below trend, with domestic expenditure contracting. On that basis alone, demand is certainly in need of support. That reinforces our view that in the medium term the cash rate will have to fall further, ultimately reaching 2 per cent by the end of the first quarter of 2014."