Australia's economic prospects have brightened with surprisingly strong trade and building approvals figures suggesting a recession may yet be avoided.
International trade data released today showed the country's deficit narrowed dramatically in the first quarter, while approvals for new homes surged in April.
The figures come just hours before the Reserve Bank's monthly announcement on interest rates, and on a day the share market hit a new high for 2009. While unemployment is still expected to rise over the coming year, recent indications at home and abroad suggest the worst of the slump may not be far off.
"There are legitimate questions that can be raised as to whether we're even in a recession," said ICAP economist Adam Carr. "It's genuinely a line-ball call whether we get a positive number or not" in the first quarter GDP.
The trade numbers, which showed the smallest deficit in seven years were not only better than expected, they also imply a boost of 2.2 percentage points to the March national accounts - a major counterweight to other factors slowing the economy.
Gross domestic product shrank in the final three months of 2008 and economists prior to today had been tipping another negative result in the March quarter. Those forecasts, implying Australia had tipped into recession for the first time in 17 years, may now be reviewed ahead of tomorrow's official release of GDP figures.
On the trade front, the March quarter current account deficit shrank to $4.6 billion from $6.5 billion in the previous quarter. Economists had expected a deficit of $5.4 billion for the March quarter.
"The current account deficit has narrowed quite a bit more than I anticipated," said RBC Capital Markets senior economist Su-Lin Ong.
Import volumes fell 7 per cent, "reflecting the impact of weaker domestic demand and the higher cost of imports",' according to Westpac economics.
The result was in part influenced by a weaker Aussie dollar making import pricier, Westpac said.
Export volumes rose 2.7 per cent in the quarter, over the same period.
TD Securities economist Annette Beacher saw signs of trouble in the collapse in imports, predicting that they signal ``a business sector in distress''.
"Look at the recent data flow for the March quarter," she said. It has shown company profits down 7.2 per cent, engineering investment has fallen 6.1 per cent and non-residential construction is down 6.3 per cent.
"This is not a one-quarter correction - it is only the beginning of the impact of the global recession on the terms of trade, and hence the business (and export) sector."
The Australian dollar strengthened on the news, trading recently at about 81 cents. Stocks also added to their advance, with benchmark indices hitting their highest levels since mid-November.
Building approvals
Approvals for new homes, meanwhile, rose in April as home buyers seized on low interest rates and cash grants aimed at bolstering growth.
Permits for new home building increased 5.1pc, seasonally adjusted, in April from a 3.5 per cent rise in March, according to the Australian Bureau of Statistics.
In the year to April, building approvals fell 16.1pc.
It is the third consecutive month of gains. The market had forecast a 2pc increase in April building approvals, according to Bloomberg.
It was unclear then whether the Rudd government would extend its more generous first-home buyers grant beyond June 30 in the May budget, which may have caused a further spurt of interest house hunting to beat the deadline.
"We're clearly seeing signs of policy traction," said RBC's Ms Ong. "The sector is being helped by generational low interest rates, higher affordability, and the First Home Owners grant boost."
The RBA is expected to leave its key interest rate unchanged at 3 per cent, its lowest in almost half a century, when the board announces its decision later today.
In last month's federal budget, Treasurer Wayne Swan extended the increased grant until September 30, after which it is to be scaled back to pre-October 2008 levels.
The grant was trebled to $21,000 for first homebuyers purchasing a new property as part of the Government's first stimulus package.
After September 30 it will be reduced to $14,000 until December 31, before returning to its original $7000.
The grant was also increased for purchases of established homes, but to a lesser degree.
Approvals for private sector homes rose 7.2 per cent in April to 8014 units, but other private sector dwellings - such as apartments and townhouses - fell 1.4 per cent to 2987 units.
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