Despite witnessing worst floods in recent history, the Australian economy surged ahead in the fourth quarter of 2010, latest data showed.
The national statistical office said the Gross Domestic Product (GDP) of the country expanded by 0.7% in the last three months of the year, compared to 0.1% growth in the third quarter of 2010.
The growth for the entire year was recorded at 2.7%, in line with the government’s forecast for the year. The growth will further accelerate in 2011. Analysts believe.
The first three months of 2011 may witness a slowdown in growth as the effect of severe flooding in Queensland and Victoria is factored in.
Stephen Walters of JP Morgan said: “You are getting off to a soggy start and a big rebound in the second half”.
However, the fast growth in the economy will trigger inflation, forcing the government to hike interest rates, he warned.
“It is going to seem really sluggish and then it is going to be the biggest boom you have ever known, so I think the Reserve Bank of Australia are going to have to look through that”, he cautioned.
The Australian Reserve Bank has left the benchmark lending rates unchanged for the fourth month in a row stating inflation numbers are within target.
Strong demand from Asia countries coupled with robust domestic growth will drive the economic expansion, analysts believe.
The theory of strong domestic demand was validated by the latest retail sales figure which showed a bigger than expected growth in sales.
Australian Bureau of Statistics said retail sales were up by 0.4% in January over the previous month.
Matthew Circosta of Moody’s Analytics said: “The economy was gathering momentum in the fourth quarter but it sort of lost that in the beginning of this year because of the floods.
“But ultimately the economy will prove resilient in 2011 and will accelerate”, he added.