Australia's Growth Story - Analyst Blog

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The Australian economy has posted its second consecutive quarter of robust growth as the booming mining sector fueled a solid rise in business growth. Gross domestic product ( GDP ) inched up 1% in the September quarter, after a sequential upward rise of revised 1.4%. The economic growth of 2.5% was the fastest in four years backed by consumer spending and mining-driven investments.

Australia, one of the world's fastest growing resource-rich economies, is endowed with a dominant services sector and an abundance of agricultural and mineral resources. A strong investment climate and solid growth in consumption are the underpinnings of economic robustness; even on the backdrop of the recent European Crisis, dwindling US economy and Asian supply shortages

Economic Milestones

  • January 2011, news excerpts --- Australia's economy suffered its biggest contraction in 20 years in the first quarter as resource exports collapsed due to floods in a major coal-producing region of Queensland, exposing its soft underbelly - dependence on mining revenue.
  • May 2011, economic surveys conclude - The economy contracted in the March quarter after floods and cyclones shut mines and railways in Queensland, disrupting coal exports. The outlook for Australia's economic growth appears to be improving. The annualized growth rate rose 5.3%. Economists are expecting GDP to rise by 0.8% in the September quarter at an annual rate of 2.1%.
  • December 2011, Australian Bureau of Statistics records -- Surging mining investment boosted gross domestic product 1% in the third quarter from the second, and the economy grew 2.5% from a year earlier, the fastest in four years. The result beat expectations of 0.8% growth in the quarter. GDP growth till September has been compared to be higher than in most of the developed world.

The Growth Engine

According to the Australian Bureau of Statistics, Gross domestic product rose 1% in the three months ended September 30, after growing at 1.4% over the prior quarter. The growth has been the highest in four years. Australia's jobless rate fell to 5.2% in October as employment gained by 10,100 workers.

Seasonally adjusted household consumption expanded 1.2% in the quarter, while government spending fell 1.2%. Manufacturing rose 1.9% in the September quarter, or 2.2% in the year to September. Retail trade volume rose 0.6% in the quarter or 1.4% y/y. Non-dwelling construction jumped 24.4%, up 1.5%. Machinery and equipment advanced 6.4%, contributing 0.4% to the expansion over the quarter.

Mining increased 3.7% in the reported September quarter. Resource projects valued at A$456 billion ($468 billion), driven by companies such as BHP Billiton Ltd. ( BHP ), RIO Tinto Plc ( RIO ) seem to have fuelled the growth. Private-sector business investment surged 12.9% from the prior quarter and 22.7% from a year earlier.

Resource-rich states of Western Australia and Queensland, the miners' paradise in short, led the growth. Western Australia's economy expanded 8.4% over the sequential quarter whereas Queensland grew 3.5% q/q based on the mined treasures.

The Growth Potion

The economy certainly recorded healthy growth and the numbers say it all. The resource boom arising from the supply shortages of Asian nations seems to be the real driver of growth.

Growth in mining investment powered the Australian economy in the September quarter. The country's miners drove the expansion. About 70% of Australian exports go to Asia - China and India in particular. The robust growth in the booming mining sector also fuelled a solid rise in business investment as borne out by official data.

Miles to Go

However, with the focus on the uncertain global economic environment and the downside risks emanating from Europe, Reserve Bank of Australia was prompted to cut interest rates by 25 basis points. The decision seems to be a strategic step to spur domestic demand targeted to combat the next inflation wave.

The Australian firms which spent A$33.6 billion ($36bn) on business expansion in the second quarter, plan to further invest A$149 billion in the financial year until the end of June 2012, indicating expectations of accelerated economic growth. Moreover, domestic consumption spending is also improving add to demand growth.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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