Australia Unexpectedly Grows 0.4%, Skirting Global Recession

June 3 (Bloomberg) -- Australia’s economy unexpectedly grew in the first quarter, skirting the global recession that has swamped the U.S., the U.K. and Japan, as exports and consumer spending increased.

Gross domestic product rose 0.4 percent in the three months to March 31 after it contracted a revised 0.6 percent in the fourth quarter, the Bureau of Statistics said in Sydney today. The median estimate of 18 economists surveyed by Bloomberg was for a 0.2 percent decline.

Stocks rose and the nation’s currency jumped to the highest in eight months as the report confirmed Australia is one of only a few economies including China and India that expanded last quarter. Record interest-rate cuts and more than A$12 billion ($9.9 billion) in government cash handouts to consumers fueled growth even as businesses slashed investment spending.

“Rumors of the death of the Australian economy have been highly exaggerated,” said Craig James, chief equities economist at Commonwealth Bank of Australia in Sydney.

“Much of the credit for Australia’s resilience must be given to the swift actions of the Reserve Bank and government in stimulating our economy.”

The Australian dollar rose to 82.40 U.S. cents at 1:07 p.m. in Sydney from 81.91 cents before the report was released.

Stocks Rise

The S&P/ASX 200 stock index increased 1 percent, paced by shares of Australia’s largest telephone company, Telstra Corp., which gained 2.3 percent. Furniture retailer, Harvey Norman Holdings Ltd., rose 5.8 percent.

Consumer spending advanced 0.6 percent in the quarter, adding 0.3 percentage points to GDP, today’s report showed. Government spending rose 0.3 percent and exports increased 2.7 percent.

Still, parts of the economy remain weak. Business investment tumbled 6.1 percent and imports fell 7 percent as companies such as Rio Tinto Group cut spending and fired workers. Car sales dropped 14.9 percent in May from a year earlier, the Federal Chamber of Automotive Industries said today.

“We’re not out of the woods yet,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “Technically we have skirted recession, but the underlying details in the data aren’t painting a great picture.

‘‘We’ve got investment falling and imports tanking, which is symptomatic of weaker investment, and households are being artificially supported by government cash handouts.”

Government Spending

Prime Minister Kevin Rudd, who said in April that the country’s economy is in its first recession since 1991, began distributing cash handouts of as much as A$900 in March to low- and middle-income earners.

“It’s been the right strategy under very difficult global conditions,” Rudd told reporters in Canberra today. Still, “difficulties and obstacles lie ahead.” Unemployment will rise and “there is no guarantee that GDP won’t fall in future.”

The jobless rate has climbed to 5.4 percent in April from 3.9 percent in February 2008 as companies such as Qantas Airways Ltd. fired workers.

Among evidence that Australia is weathering the global slump, building approvals jumped twice as much as economists forecast in April, new homes sales gained for a fourth month and the current account deficit narrowed in the first quarter as agricultural exports surged.

Today’s report showed rural exports jumped 18.3 percent in the quarter. Wheat output rose to 21.4 million tons in 2008-2009, the biggest crop in three years, from about 13 million tons a year earlier, according to the Australian Bureau of Resource and Agricultural Economics.

Retail sales rose in the first quarter and again in April.

‘More Resilient’

Woolworths Ltd., Australia’s largest retailer, said last month that sales surged 6.5 percent to A$12.3 billion in the three months ended April 5. Caltex Australia Ltd., the nation’s largest oil refiner, said on April 23 that first-quarter operating profit gained 11 percent.

“It’s good for confidence that we’ve avoided that technical recession,” defined as two consecutive quarters of declining GDP, said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. Today’s GDP figures “indicate Australia is much more resilient than many other economies.”

The economy grew 0.4 percent from a year earlier. Economists forecast a 0.4 percent contraction.

By contrast, Japan’s economy shrank 9.7 percent in the year, the U.K.’s GDP dropped 4.1 percent, the 16-member euro region contracted 4.6 percent and the U.S. slid 2.5 percent. The economy of China, Australia’s largest trading partner, grew 6.1 percent and India expanded 5.8 percent.

Interest Rates

The global turmoil, triggered by last year’s collapse of Lehman Brothers Holdings Inc., prompted Reserve Bank Governor Glenn Stevens to slash the overnight cash rate target between September and April by a record 4.25 percentage points.

Stevens left the rate unchanged at 3 percent yesterday for a second month and signaled that he is prepared to cut borrowing costs from a 49-year low to spur domestic demand “if needed.”

“The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy,” Stevens said.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Traders forecast the benchmark will be 24 basis points higher in 12 months, the index showed at 12:39 p.m. in Sydney. At the start of May, they tipped 37 basis points of cuts. A basis point is 0.01 percentage point.