Australia’s economy rebounded last quarter as consumers and government spent freely after a weather-beaten start to the year, while a long downturn in mining investment finally loosened its deadening grip on growth.
Wednesday’s GDP report showed the economy expanded 0.8 percent in the second quarter, up from 0.3 percent in the first quarter and outpacing even the much-vaunted U.S. recovery.
Yet all this growth has shown no sign of rekindling inflation and, with plenty of spare capacity in the labor market, the Reserve Bank of Australia seems content to leave interest rates at record lows for months to come.
“We have an economy that is enjoying its longest-ever expansion,” said Craig James, chief economist at stockbroker CommSec. “Inflation is below 2 percent; unemployment is below longer-term averages; consumers and businesses are spending.”
“It’s an economy that doesn’t need to be slowed down or sped up by policy changes like movements in interest rates.”
That was very much the view laid out by RBA Governor Philip Lowe in a speech late Tuesday.
“It will be some time before we are at what could be considered full employment and before underlying inflation is at the mid-point of the medium-term target range,” he declared.
“This means that stimulatory monetary policy continues to be appropriate.”
Interbank futures imply virtually no prospect of a move in the 1.5 percent cash rate this year and around a 50-50 chance of a hike by June 2018.
The goldilocks data won a round of applause in the bond market where yields on government debt fell. The local dollar dipped to $0.7993 against the U.S. dollar as speculators had been wagering on an even stronger growth outcome.
