For the third consecutive quarter, Australia has recorded annual GDP growth of 3% or better. The economy grew by 0.5% over the June quarter, which was higher than the median forecast of 0.4%. On a year-on-year basis, GDP growth was 3.3% which was also higher than the 3.2% expected by economists. A major part of the increase was driven by the public sector at the state and local government levels where spending on goods, services and investments accounted for 1.0% of the GDP growth. This was almost offset by a 0.8% contraction in non-residential construction.
This latest quarter of GDP growth marks a milestone few countries have reached; 100 quarters or 25 years without a recession (defined as two quarters in a row of negative GDP growth). At 103 quarters, the Netherlands has the longest non-recessionary period since records were kept.
The knee-jerk reaction in the currency market was to send the AUD down against the USD but this was quickly reversed and the local currency traded marginally higher over the rest of the day. A higher exchange rate signals the currency market thinks higher future interest rates are more likely. 10 year bond yields moved up prior to the release but quickly fell back again and towards the close of business the yield was around 1.84% or down around 7.5bps on the day. While this bond move was unusual (a strong GDP figure usually means bond yields increase) it has been explained away by two things: the market following the overnight US bond rally; and while GDP growth might be above trend it is not generating much in the way of inflation.
