Australia grows briskly in Q4, set for strong 2010

You certainly can't keep a good economy down Michael Blythe, Commonwealth Bank. (GETTY IMAGES)

Australia's economy grew at the fastest pace in almost two years last quarter on a potent mix of fiscal pump priming, business investment and consumer spending, and all the signs favour a further acceleration this year.

Gross domestic product, or the value of all goods and services produced, rose 0.9 per cent in the fourth quarter, from the previous quarter when it increased by just 0.3 per cent.

The upbeat result supported the Reserve Bank of Australia's (RBA) decision to lift interest rates this week, and the likely need for more hikes as growth nears the economy's speed limit.

"You certainly can't keep a good economy down," said Michael Blythe, Chief Economist at Commonwealth Bank. "And recent indicators suggest more to come as we move into 2010."

"I doubt the RBA expected it to move quite so quickly," he added. "We're expecting a cash rate of five per cent by year end, and that looks like a good call in light of these numbers."

The central bank raised its cash rate by 25 basis points to 4.0 per cent on Tuesday, the fourth rise in five policy meetings, and flagged further increases back toward a more normal range of 4.25 to 4.75 per cent.

The exact timing of future moves will now depend on the flow of monthly economic data, and particularly the jobs figures which had stunned with their strength in recent months.

 

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