Australian economy slows in fourth quarter

SYDNEY: Australia's mining-driven economy grew slower than expected in the December quarter, expanding just 0.4 percent as investment stalled and export prices slumped, according to data released Wednesday.

The Australian Bureau of Statistics (ABS) said gross domestic product grew by 0.4 percent in the three months to December compared to the previous quarter, half the rate analysts had forecast.

Over the year, growth reached 2.3 percent, against expectations of 2.4 percent.

Treasurer Wayne Swan said it was a "solid" result given that "the world was facing the most dire conditions in the global economy since the height of the financial crisis" during the final months of 2011.

"Despite our underlying strengths, we always said that global instability would impact our economy, and these headwinds have added to existing pressures from the sustained high dollar and the cautious consumer," he said.

"In the face of the acute global turmoil, it was encouraging to see that economic growth in the quarter was driven by strong growth in exports and modest growth in consumption."

Solid consumer spending was offset by slumps in business and dwelling investment, while Australia's terms of trade -- the value of its exports against its imports -- fell 4.7 percent.

It was the measure's first drop since September 2009, following an easing in commodity prices as global demand slowed.

"This was reflected in real gross domestic income, which declined 0.6 percent in seasonally adjusted terms for the quarter," the ABS said.

Swan put the decline in investment down to "quarter to quarter volatility" driven by the massive scale of Australia's mostly mining-related projects.

"While new business investment declined by one percent in the quarter it's still up a spectacular 18.9 percent through the year," he said.

The Australian dollar dived to a six-week low of US$1.0524 on the data which was seen as increasing the chances of an interest rate cut in the near-term. It had been fetching $1.0572 immediately prior.

Analysts said the data revealed sluggishness in the non-mining economy and cast doubt on the central bank's predictions of trend growth as it held rates steady for a second month at 4.25 percent this week.

"The mining boom is alive and well, but it's not leading to much in the way of a spillover effect on the rest of the economy," said AMP Capital Investors economist Shane Oliver, predicting weak growth for the next six months.

"Overall, it's a pretty soft outcome. Consumer spending is just hanging in there, but there was quite pronounced weakness in investment."

Canberra expects growth of 3.25 percent for 2011-12, while the Reserve Bank of Australia slashed its GDP forecasts last month for the financial year to June 30 to 3.5 percent.

The central bank has tipped 3.0-3.5 percent growth for calendar 2012.