Australia’s Economy Expands 1.1% in Q1

Australia’s economy grew more than expected in the first quarter, even as diminishing inflation pressures the central bank to cut interest rates in May.

The economy expanded at 1.1 percent from three months earlier, when it gained 0.7 percent and surpassed economists forecast of 0.6 percent.This is its fastest pace in four years.

Year-on-year the economy rose 3.1 percent, compared with economists prediction of 2.8 percent gain. The expansion was mainly driven by a 4.4 percent jump in exports, which added 1 percentage to growth, and also a 0.7 percent increase in household spending.

The Australian central bank last month ended a one-year policy pause and lowered its benchmark to a record-low 1.75 percent as the disinflation that’s engulfed much of the developed world arrived Down Under. The economy’s recent strength suggests a follow-up cut is less likely.

“These numbers will validate a bit of caution on the part of the RBA not to ease too aggressively,” said Richard Yetsenga, acting chief economist at Australia & New Zealand Banking Group Ltd. in Sydney. While the RBA will cut interest rates further, it won’t happen until August, he said.

Further buttressing the case for a stronger economy came Tuesday when central bank data showed business lending rose at the fastest pace in seven years, suggesting policy makers’ efforts to orchestrate a handover to non-mining sources of growth is taking hold. Indeed, demand for corporate loans has steadily gathered pace since mid-2015, reflecting improved business conditions.

The local dollar advanced after the report, buying 72.96 U.S. cents at 12:14 p.m. in Sydney, from 72.44 cents before the data.