Australia is set to lead the world in pushing up interest rates after a surge in growth that has made it the envy of its peers and seen the Rudd government claim vindication for its stimulus measures and financial markets punt on a rate hike next month.
The Australian economy grew 0.6 per cent in the June quarter and 1 per cent over the first half of this year, more than reversing a one-off dip of 0.7 per cent at the end of last year to become the only major developed economy to have grown since the onset of the financial crisis.
Prime Minister Kevin Rudd claimed all of the credit for his economic stimulus program telling reporters in Perth that "without the stimulus, through the Nation Building for Recovery plan, the Treasury advises that the Australian economy would, right now, have been in the deepest of recessions and unemployment would have been going through the roof".
Opposition Treasury spokesman Joe Hockey appeared to concede that the stimulus program had helped saved Australia from recession, telling a news conference in Sydney "of course if you throw enough money at a problem, some of it will stick; and it's good, it’s good for Australia."...
The Australian economy grew an unexpected 1 per cent during 2008-09, well above the Budget forecast of zero, and enough to usher in Australia's 19th straight year without recession.
Driving the rebound was an 0.8 per cent bounce in household consumption in the quarter, built around a 2.5 per cent splurge in spending on clothes and shoes and a 1.9 per cent binge in spending on furniture and household equipment.
Business investment in equipment jumped 5.6 per cent, spurred by generous depreciation allowances in the May Budget.
"This has Prime Minister Rudd’s fingerprints all over it," said TD Securities economist Annette Beacher. "The big test going forward is how the economy copes without trhe generous incentives."
Macquarie Group economist Rory Robertson declared next month's October 6 Reserve Bank board meeting "live" with the potential for the first rate hike.
"The run of good news on business investment, house prices and now growth suggests that something bad would need to happen in order to stop the Bank fast-tracking its first hike to October."
Treasurer Wayne Swan again acknowledged the possibility of an early interest rate hike was likely but said any attempt to link it to the success of his stimulus measures would be "absurd".
Financial markets priced in an even-money chance of an October 6 rate hike as Shadow Treasurer Joe Hockey said that now was the time to wind the stimulus programs back.
"Today’s a warning bell for Mr Rudd – stop spending so much money, otherwise we are going to end up with higher interest rates and higher taxes. The money being spent over the next four years will be about politics and not about economics, and will be a ball and chain around the recovery."
But Mr Swan said the stimulus measures already had end dates and that he had seen nothing that suggested they should be brought forward.
"They've enabled us to defy global economic gravity," he said, labeling the Coalition's decision to oppose them a "monumental misjudgment".
The national accounts point to an unevenly balanced economic recovery with extra household spending being met from imports and stocks rather than extra production and real net disposable income sliding a further 2 per cent and Australia's terms of trade slipping a further 7.4 per cent.
The recovery is unevenly balanced with South Australia and Victorian demand growing the strongest in trend terms, NSW growing not at all and Western Australian and Queensland going backwards.
Back on track
Australian GDP: up 0.6%
GDP per capita: up 0.1%
Household consumption: up 0.8%
Business investment: up 2.0%
Export volumes: up 1.0%
Import volumes: up 2.1%
Victorian demand (trend) up 0.6%
NSW demand (trend) 0.0%
ABS 5206.0, March quarter
Published in today's SMH and Age