After contraction in the final quarter of 2008, the country’s seasonally adjusted GDP grew by 0.4% in the first quarter of this year, according to the Australian Bureau of Statistics. Non-farm GDP grew by 0.5%. However, in trend terms, Australian GDP still shrank by 0.1%, and its non-farm GDP by 0.2%.
The news came as a surprise and at a time where most of the developed and major emerging markets are in recession. After the government showed that Australia has avoided two consecutive quarters of contraction, the Australian dollar jumped to an eight-month high against the US dollar.
In February, the government introduced an A$41.5 billion (£20.5 billion) fiscal stimulus package which includes A$12 billion in cash bonuses for low-to-middle income earners, designed to boost the economy and avert a recession.
The Reserve Bank of Australia had also cut interest rates to a 45-year low of 3.25% to avert a recession.
Yesterday, the central bank decided to leave the cash rate unchanged at 3%. According to a statement by Glenn Stevens, the governor of monetary policy, Australia’s prospects are being helped by better conditions in the financial markets.
“Confidence, while improving, nonetheless remains fragile, and balance sheets are under pressure from the effects of economic weakness on asset quality. Credit remains tight. Continued progress in restoring balance sheets is essential for a durable recovery,” the statement continues.
Gabriel Stein, the chief economist at Lombard Street Research, writes in his Daily Note that Australia’s growth pattern is “very similar” to that of South Korea. South Korea was the other major economy that avoided recession as domestic demand improved and with exports bettering imports.
While growth is likely to remain below-trend in coming quarters, Stein writes, it could remain positive.