Australia GDP Growth Beats Expectations but Mining Boom End Beckons

Australia's economy grew above expectations in the second quarter on the back of high consumer and government spending, but analysts expect a slowdown over the coming quarters as the country's mining boom is coming to an end.

The Australian Bureau of Statistics (ABS) said the nation's GDP rose 0.6% in the second quarter, up from a 0.5% growth in the opening three months. Analysts expected a seasonally-adjusted growth rate of 0.5%.

That was the 22<sup>nd consecutive quarterly growth for the country. On a year-on-year basis, GDP rose by 2.6% in the second quarter, compared with forecasts for a 2.5% growth.

Growth for the quarter was driven by a 0.2% contribution from household final consumption and 0.2% contribution from changes in inventories, according to the ABS.

Finance, mining and construction industries were the main contributors to growth in the second quarter. While the finance industry contributed 0.2% to the GDP, other industries contributed 0.1% each.

Slowdown in Mining Sector

Australia's resource rich economy has been witnessing robust growth in recent years on the back of a booming mining sector. The growth rate has, however, slowed down due to waning demand for natural resources such as iron ore especially from high-growth countries such as China.

Growth in other sectors could not compensate for the lag in mining.

Australian miners have considerably lowered their expectations of future demand amid a slowdown in China, which is their main export market. The lower demand from China negatively affected commodity prices as well.

The International Monetary Fund (IMF) and many analysts had expected China to grow at rates of about 9.5% at least until 2016. However, China's growth declined significantly in the recent quarters, and the IMF is currently projecting a growth rate of 7.5% to 8% for the current fiscal year.

In addition, China is seemingly shifting from its commodity-led growth model.

Australia's opposition Liberal-Nation coalition leader, Tony Abbott, blamed the Labour government for killing the mining boom with the introduction of a tax on the mining sector.

Given the adverse situation, economists are predicting a further growth slowdown in Australia.

"We expect growth to slow further over the coming quarters as the economy struggles to cope with cooling mining investment," said Daniel Martin, Asia economist at Capital Economics.

"In our view, changes to tax policy will not be able to prevent mining investment from soon becoming a drag on growth."