05/03/2008 - 10:26

WA leads economy with 9.7pc growth

05/03/2008 - 10:26

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Western Australia's powerhouse economy has continued to push up national growth, with WA posting the fastest growth of any state with a 9.7 per cent increase in state final demand during 2007.

Western Australia's powerhouse economy has continued to push up national growth, with WA posting the fastest growth of any state with a 9.7 per cent increase in state final demand during 2007.

The rapid growth in WA helped to lift Australia's economic growth rate to 3.9 per cent in 2007.

The figures released today by the Australian Bureau of Statistics showed gross domestic product (GDP) rose by a seasonally adjusted 0.6 per cent in the December quarter, compared with a rise of 1.1 per cent in the September quarter.

The median market forecast was for a rise of 0.6 per cent in the December quarter and an annual rate of 3.7 per cent.

St George Bank economist Steven Milch said the data reinforced what was already apparent - that the Australian economy was continuing to expand at a solid pace.

He said domestic demand was particularly strong.

"We know the economy finished on a strong note in 2007 and that's reflected in domestic demand which was up 1.6 per cent for the quarter," Mr Milch said.

In the 12 months to the end of December, domestic final demand grew by 5.7 per cent.

CommSec said WA led the nation with its 9.7 per cent rise in state final demand. Of the major states, the weakest was South Australia with 2.7 per cent growth.

St George's Mr Milch said a decline in net exports was the chief reason for a slowing in the rate of GDP growth from the September quarter.

He said the Reserve Bank of Australia would be pleased by the wages aspect of the report - the compensation of employees measure - which grew by just 0.8 per cent in the December quarter.

The RBA has pointed to the potential for tight labour market conditions, a result of the strength in the economy, to cause a wage price spiral which could feed back into inflation and give rise to the need for further interest rate hikes.

"It's important to keep in mind this is a period that began around five months ago and finished around three months ago, so it is old news to some extent, and for that reason I don't think it has a lot of baring on monetary policy.

"But it does give us some information ... on the wages measure (and shows) there is strong domestic growth but problems on the export front."

Household final consumption expenditure rose 1.6 per cent in the quarter and was up 5.0 per cent over the year to December.

UBS chief economist Scott Haslem said the figures showed the economy ended 2007 "at a pretty strong pace", particularly with domestic demand growth at 1.6 per cent.

"It's not obvious that there's wage inflation in today's release. There's certainly a lot of income growth," Mr Haslem said today.

"Overall I think it confirms the economy ended the year quite strongly, led by private consumption, and domestic demand is still running significantly, or in the RBA's words, appreciably above its long-term average.

"The extent to which the economy slows over time in response to recent rate hikes, I think we will just have to wait and see."

Westpac Bank senior economist Anthony Thompson said that while the data showed the pace of economic growth in Australia had slowed, it would not be enough to see the RBA retreat from its current rates tightening bias.

He said it was clear from the data that household demand had remained strong, and that exports remained a problem after providing a substantial drag on overall GDP growth.

"Overall these numbers confirm what the RBA has been saying in that the economy was still growing pretty strongly at the end of last year.

"But more importantly for the outlook are obviously these tentative signs of a slowdown that they acknowledged yesterday in the statement accompanying the rate hike."

Despite the apparent slowing in growth, Westpac maintained its view that the RBA would tighten monetary policy again in the medium term.

"We still think they won't have enough signs (over the next few months) that growth is slowing fast enough as they would like.

"While we do think rates will be on hold in April, given the less hawkish tone of yesterday's statement (from the RBA), we are sticking with our view at this stage that they will probably need to tighten by another 0.25 per cent in May after the (release of the) consumer price index."

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