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Impressive growth puts pressure on rates. -

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ELEANOR HALL: The GDP figures released a short time ago show that Australia's economy expanded at a
rapid pace in the final three months of last year.

The 0.9 per cent rise in GDP put the pace of economic growth in 2009 at an impressive 2.7 per cent.

And there are signs of a further acceleration.

But there's a quid quo pro for the strong economic recovery - the Australian dollar rose on the
news, as traders anticipated further interest rate rises by the Reserve Bank.

Economics correspondent Stephen Long joins me to analyse the national accounts numbers.

ELEANOR HALL: So Stephen, growth of 2.7 per cent over 2009 at a time when all the talk was of the
financial crisis - few would have anticipated that a year ago would they?

STEPHEN LONG: Indeed Eleanor, if you look back to the Reserve Bank forecasts in their first
quarterly statement on monetary policy in 2009, they were tipping growth over the year to the end
of December, the fourth quarter at just half a per cent and we've come in at 2.7 per cent.

So that is a monumental turnaround. I guess you can't keep Down Under down and it is very, very
impressive growth and it shows that we're cemented in recovery and certainly we can expect on the
forward indicators that it's going to strengthen - barring some sort of external economic shock.

ELEANOR HALL: How much of the strength of this growth is due to the Government's fiscal stimulus
package over the last year?

STEPHEN LONG: Oh a big part of it. If you look at the contributions to growth in the fourth
quarter, for instance Eleanor, you've got gross fixed capital formation by the private sector,
which in plain English means business investment and new plant and equipment.

Now that was heavily influenced by tax breaks that the Government provided for investment and plant
equipment, cars. And you also had a solid contribution from public spending - the investment in
schools and the like and household consumption was pretty strong as well and there there may have
been some lingering effect from those cash handouts that the Government gave, plus the low interest

The drag was from exports, net exports, with a strong import position. But that's not the sign of a
weak economy either. That's partly due to the fact that companies were bringing in capital
equipment for investment and also consumers were buying goods again and hence imports rose.

ELEANOR HALL: Is there much difference between the states?

STEPHEN LONG: Oh there's quite a deal of difference between the states as we've come to expect and
this is one of the worries going forward, that we continue to have a two track economy in

But the Reserve Bank has to look beyond that at the national picture and they've made that very,
very clear and so we can expect a really big take off, I think, in the mining states.

The Reserve Bank has actually spoken about the strength of mining investment that we're likely to
see. The terms of trade are turning around, and so I'd say it's happy days in the west and that
Queensland going to get a big boost as well from growth.

One of the issues raised by this Eleanor is that the Reserve Bank was tipping growth of about
three-and-a-quarter per cent in the year that we're in and if this continues, it may be even

And they are very, very concerned that we are coming into this upswing with a lack of spare
capacity; the unemployment rate at 5.3 per cent, coming out of a downturn into an upswing; a lack
of resources, if we have that big investment - both of labour and equipment.

And so, you wonder how quickly they'll want to put the brakes on. But on the other hand the
underlying inflation rate is still pretty benign, so there's no urgency on that front to lift and
it's pretty hard to pick exactly when they will move.

ELEANOR HALL: Is there a question though about whether the Reserve Bank will move rates beyond
normal and now start pushing them up to curb potentially rising inflation?

STEPHEN LONG: There is that possibility. Most economists now are tipping that the cash rate will be
five per cent by the end of the year, up another percentage point on where it is now and that's
higher than I think people expected just a short while ago.

But let's put it in context, I doubt very much that the Reserve Bank was surprised by these
numbers. It lifted rates at the end of last year, clearly with an expectation that the economy was
in a very strong position and it was looking out the window and gauging its, gauging feedback from
business about what was going on and it's lifted again now.

So it doesn't necessarily mean a quicker pace of rates rises, but yes, there is a possibility that
they will go up above normal to rein in growth. But on the other hand the inflation rate, at the
moment, doesn't put that sort of pressure on the Reserve Bank.

ELEANOR HALL: Stephen Long, our economics correspondent, thank you.