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Australia government spending pads growth in Q2

Published 06/09/2016, 12:42 pm
Updated 06/09/2016, 12:50 pm
© Reuters.  Australia government spending pads growth in Q2

* Government consumption unusually brisk +1.9 pct in Q2

* Current account deficit A$15.5 bln on large downward revision

* RBA seen holding rates at 1.5 pct at monthly meeting

By Wayne Cole

SYDNEY, Sept 6 (Reuters) - Australia's government went on a mini-spending spree last quarter, padding economic growth in the face of a pullback in trade receipts, data showed on Tuesday.

The country's current account deficit came in well below forecasts at A$15.5 billion ($11.8 billion) after the Australian Bureau of Statistics revised its numbers to include an extra A$5.8 billion in income.

The mixed bag of data left most economists looking for a rise of around 0.4 percent in gross domestic product (GDP) in the second quarter, a step down from the first quarter's unusually strong 1.1 percent increase.

Yet annual growth was still seen ticking up one tenth of a percent to 3.2 percent, the fastest pace in almost four years and well ahead of most of the rich world.

None of this would be a surprise to the Reserve Bank of Australia (RBA) which has already cut rates twice this year to try and rev up economic growth.

The central bank holds its September meeting on Tuesday and is considered almost certain to hold rates at 1.5 percent while it judges the impact of the easings in August and May.

All 33 economists polled by Reuters expected a steady outcome and financial markets are pricing in a vanishingly small chance of a cut at what is the last meeting for Governor Glenn Stevens who is retiring. 0#YIB: .

Most respondents looked for rates to stay on hold to the end of the year, though many favoured one final easing to 1.25 percent during the first quarter of 2017. AU/INT

The recent rate cuts were driven largely by a surprisingly sharp slowdown in inflation and the need to prevent the local dollar from climbing too far in reaction to hyper-aggressive policy easing elsewhere in the world.

Keeping the currency competitive was critical given trade has been the single biggest booster of growth. Net exports accounted for no less than 1.9 percentage points of the 3.1 percent rise in GDP reported for the year to March.

Tuesday's data showed net exports subtracted 0.2 percentage points from growth in the second quarter, a natural payback to an exceptionally strong first quarter.

A separate report showed the Liberal National government of Malcolm Turnbull jacked up recurrent spending by 1.9 percent in the second quarter, providing a timely lift to growth.

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