Trade turnaround keeps Australia in the black
By Clancy Yeates | smh.com.au | 04 June
Amid deteriorating business activity, a stunning trade performance helped the economy post 0.4 per cent growth, bouncing back from a 0.6 per cent contraction in the previous quarter.
The ASX 200 surged 1.6 per cent to a seven-month high of 4017.20, while the Australian dollar closed at US82.46c, its highest since September.
But economists said the figures also exposed the fragile state of the economy, and many still predict a contraction in the June quarter.
Key industries are shrinking, raising question marks over how long growth can remain positive.
Manufacturing posted a sharp decline for the second time in a row, shrinking by 3.3 per cent in the quarter and 9 per cent in the year to March. Export industries also suffered, with agriculture shrinking by 2.4 per cent and mining by 1.5 per cent.
Boosted by the $42 billion stimulus package, retail trade was among the few sectors to expand, posting 0.8 per cent growth.
Despite the mixed messages, the managing director of Maxim Asset Management, Winston Sammut, said investors were buoyed by the stronger than expected trade performance.
"The market's been so beaten over the last six to twelve months that positive news is being welcomed even though it's being met with a bit of surprise," he said.
After retreating to their home markets, Mr Sammut said global investors were starting to return to Australia.
"It takes a while for foreign investors to get comfortable again, and I think we are seeing evidence of that now," he said.
Several economists were puzzled by the result, which they said was due to a sharp improvement in the trade ledger. Imports fell 7 per cent cent, against a 2.7 per cent rise in exports.
The chief economist at RBS, Kieran Davies, said the trade contribution of 2.2 percentage points to growth was the second biggest since World War II.
"This was remarkable considering that demand in our trading partners was falling at the fastest rate since the 1930s," he said.
But as miners reveal big price cuts in the country's two biggest exports, coal and iron ore, a repeat performance looks unlikely.
In another ominous sign for growth and employment, business investment fell 6.1 per cent in the quarter as many projects were put on hold.
The ANZ economist Riki Polygenis said: "We remain concerned that factors propping up growth cannot be sustained. The business sector is showing all the hallmarks of contraction, with investment, production and inventories all falling."
First published by Smh.com.au on June 04 2009
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