GDP growth still needs to be broader: ACCI

GDP growth still needs to be broader: ACCI

Leading business groups say the need for economic growth to broaden to non-mining sectors may yet need the help of another interest rate cut.

Business groups say the make-up of growth over 2012 indicates that the transition from resources to non-mining sectors to drive the economy may still need the helping hand of another interest rate cut.

The latest national accounts figures released on Wednesday showed the economy grew at 0.6 per cent in the December quarter for annual rate of 3.1 per cent, close to its long term trend.

But Australian Chamber of Commerce and Industry chief economist Greg Evans is concerned that the result was helped by a large lumpy contribution from government investment during the quarter.

He also noted that household consumption was subdued, non-dwelling contraction was down, and machinery and equipment purchases were lower.

"This points to a business sector which remains cautious on all fronts, including in critical decision making relating to investing, employing and its willingness to borrow to expand," Mr Evans said in a statement.

"With the economy needing to transition to more broad based growth, conditions in the mainstream economy remain subdued and the Reserve Bank will need to watch closely as further rate cuts may be required."

The central bank held its official cash rate steady at Tuesday's monthly board meeting, but reiterated that it had scope to ease monetary policy again should the economy need it.

The Reserve Bank of Australia (RBA) has said other sectors of the economy will have to take up the slack as mining investment peaks this year.

Housing Industry Association senior economist Shane Garrett was encouraged by a 3.4 per cent increase in private home construction in the December quarter as a result of 175 basis points worth of cash rate cuts between November 2011 and December 2012.

But he said this increase was well short of what the RBA and the Australian economy required.

"In the absence of significant growth across all sectors of the industry, it is still too early to declare an end to the housing weakness," Mr Garrett said in a statement.

He said further interest rate reductions are warranted, along with policy action from governments to support residential construction activity.

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Tags GDPInterest ratesReserve Bank of Australia (RBA)Australian Chamber of Commerce and Industry

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