Economic growth starting to pick up pace

Exports lifted economic growth to an annual rate of 2.8 per cent after the December quarter. Source: AAP

ECONOMIC growth picked up pace at the end of 2013, and it looks like it will get even stronger in 2014.

Gross Domestic Product (GDP) expanded by 0.8 per cent in the December quarter, for an annual rate of 2.8 per cent, official figures show.

The figures were slightly better than economists and the Reserve Bank of Australia had expected, but JP Morgan Australia chief economist Stephen Walters said it is still unimpressive.

"The annual change is just 2.8 per cent, still below trend, meaning the jobless rate will keep climbing," he said.

"Still, lets not get too gloomy. We expect a pretty benign post mining investment boom adjustment, with growth lifting slowly towards three per cent over the course of 2014.

"Given the sheer size of the resources boom - more was invested in mining in Australia in the seven years to 2012 than in any other country - we should accept a period of sub-trend growth without complaint."

Mr Walters said the rotation of growth from mining investment to the non-mining sectors of the economy looks slow.

"Outside higher exports, the positive contributions last quarter from household spending, home construction and public spending (all higher) were wiped out by a big fall in private investment, leaving domestic demand all but flat," he said.

"Where's the rotation?"

Commonwealth Bank chief economist Michael Blythe said while the economy's transition appears elusive, mining and resources exports are a major factor in supporting growth at the moment.

He said export volumes were up 2.1 per cent in the second half of 2013 and contributed 0.5 percentage points to GDP in that period.

"Spending on new dwellings and non-mining capex both fell in the fourth quarter," he said.

"Mining capex has rolled over and is starting to decline and resource exports are now growing strongly as new production comes on line."

RBC Capital Markets senior economist Su-Lin Ong said the figures show interest rate cuts in the past couple of years are having the desired effect on the economy.

"We are encouraged by some stronger household dynamics but mindful that the emerging hole in activity as mining related capex projects finish is large and will get bigger," she said.

"As long as there are signs of policy traction, core inflation remains in the upper half of the RBA's target range, and there is no substantial deterioration in the labour market, the RBA is likely to stay on hold."

Ms Ong said other factors such as a fall in overall investment in the economy and a likely fall in government spending means that the RBA will keep the cash rate at 2.5 per cent for the remainder of 2014.

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