Australia’s mineral wealth was key to a 1.1% expansion of GDP in the first quarter of this year. Analysts had expected it to come in at the 0.9% mark, but global demand was slightly stronger than anticipated. The lion’s share of the growth was driven by the mining sector which accounted for four fifths of the growth. There is concern in Australia that the nation is too dependent on its raw materials sector and therefore at risk to a fall-off in global demand; particularly a slowing of demand from China. The mining sector has been the engine of Australian economic growth in recent years.
The growth figure equates to an annualised growth figure of 3.5% and represents the best performance that the Australian economy has produced for two year. The government’s projection for full year growth in 2014 stands at 2.5%.
The Central Bank has left its interest rate untouched at 2.5% which, whilst astronomical in comparison to many other central bank rates, remains at a record low level for Australia. The central bank interest rate has been on-hold for ten months now. The government hopes that the relatively cheap cost of borrowing will act as a stimulus to business expansion helping to diversify the economy away from dependence on the mining sector. Speaking to the BBC, Michael Workman an economist at the Commonwealth Bank of Australia noted: “The transition from mining to other growth drivers is clearly underway, a lot of housing investment, firmer consumer spending, and the strong pick up in exports.” However, a governmental drive to get the deficit firmly under control requires tax increases and spending cuts and this could stifle domestic demand, creating headwinds for the diversification efforts.