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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (7395)	6/2/2004 1:58:19 AM
From: CalculatedRisk	Respond to of 116555

Cooling housing market slows Australia's growth news.ft.com SYDNEY, June 2 (Reuters) - Australia's economic expansion slowed sharply in the first quarter as sluggish exports and a cooling housing market put a brake on the rampant growth seen in the latter half of 2003. First-quarter gross domestic product rose just 0.2 percent compared with a revised 1.3 percent gain in the final quarter of last year, data showed on Wednesday. GDP expanded 3.2 percent in the first quarter from a year before. The numbers endorsed the central bank's decision to leave interest rates on hold for a sixth consecutive month and the market is increasingly convinced that 5.25 percent looks near the peak of the current cycle. A Reuters poll had forecast a 0.5 percent GDP rise from the previous quarter and a 3.6 percent increase from a year ago. "In part, it is payback for a super strong economy in the second half of last year," said Su-Lin Ong, senior economist at RBC Capital Markets. "But clearly, the higher interest rates of last year, coupled with a softening in the housing market are seeing domestic demand ease and we'd expect that trend to continue as the year unfolds." "It definitely justifies the RBA (Reserve Bank of Australia) decision to hold rates steady this morning and rates are clearly on hold for the time being." The Australian dollar slid to 70.40 U.S. cents on the data release compared with 70.70 just before, while September bill futures rose to 94.48 from 94.44 as the weak data pointed to a lower risk of rate hikes. RATES ON HOLD While exports have improved as the economy has recovered from its worst drought in more than 100 years, a strong Australian dollar has slowed shipments. The Australian dollar touched a seven-year high of 80.05 U.S. cents in February. Business investment and retail spending also slowed in the quarter, while Australia's housing market has come off the boil after two interest rate hikes in the final quarter of 2003. "Despite moderate growth in the March quarter, underlying fundamentals remain strong," Treasurer Peter Costello said in a statement. "The strengthening international recovery should see Australia's net export performance improve in the period ahead, assisted by the recent depreciation of the exchange rate." The Aussie has dropped 12 percent since its peak three months ago. Costello said the recent increase in crude oil prices was an upside risk to Australia's inflation outlook. The government has forecast inflation of two percent for fiscal 2004/05. The Reserve Bank of Australia (RBA) on Wednesday left its key cash rate at 5.25 percent. The decision came as no surprise to the market, with most economists seeing no change or maybe just one more small rise this year. A couple have even forecast a slight easing by year-end. Markets may get a further clue on interest rates when Deputy RBA Governor Glenn Stevens gives a speech in Brisbane later on Wednesday. RBA Governor Ian Macfarlane will also deliver his semi-annual testimony to the parliamentary economics committee on Friday.