Australia’s economy grew last quarter at the fastest pace in almost two years, underscoring the central bank’s decision yesterday to boost borrowing costs for the fourth time in five meetings.

Gross domestic product climbed 0.9 percent from the third quarter, when it gained a revised 0.3 percent, the Bureau of Statistics said in Sydney today. That matched the median estimate in a Bloomberg News survey of 18 economists.

Governor Glenn Stevens, the first Group of 20 central banker to increase interest rates this year, says Australia’s economy is running at or near “trend” after skirting last year’s global recession. Growth may strengthen this year as China’s demand for resources stokes investment by companies including BHP Billiton Ltd. and Chevron Corp.

“The question now is not whether growth will be sustained, but rather, how strong growth will be in 2010,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. That means companies may soon “encounter the side-effects of strong growth, such as labor shortages and industry bottlenecks,” he said.

The GDP figures add to the view “that monetary policy stimulus is no longer required,” said Redican, one of only three economists in a Bloomberg News survey yesterday who expect the central bank to raise its benchmark interest rate again next month. Fifteen of the 22 economists surveyed predict borrowing costs will be kept unchanged in April and increased in May.

‘Very Pleasing’

The Australian dollar traded at 90.42 U.S. cents at 12:06 p.m. in Sydney from 90.54 cents just before the report was released. The two-year government bond yield rose 1 basis point to 4.57 percent. A basis point is 0.01 percentage point.

“These are very pleasing numbers today and they give us cause for optimism that” the economic expansion will be “sustained,” Treasurer Wayne Swan told reporters today.

Machinery and equipment spending surged 10.9 percent in the quarter from the previous three months, adding 0.8 percentage points to GDP, today’s report said. Household spending rose 0.7 percent and government spending jumped 1.8 percent.

The economy grew 2.7 percent from a year earlier, the report showed. Economists forecast a 2.4 percent expansion.

Signs that Australia’s economy outperformed other nations made its dollar the best performer among the most-traded currencies in the past year. The currency has climbed 42 percent versus its U.S. counterpart since March 2009 and this week hit a 25-year high against Britain’s pound.

Interest Rates

Faster-than-anticipated growth was a key reason policy makers increased the overnight cash rate target to 4 percent yesterday from 3.75 percent and prompted Governor Stevens to say rates should be closer to “average,” which he last week signaled may be 75 basis points higher than they are now.

“It’s a very strong end to last year and seems fairly broad-based,” said David de Garis, a senior economist at National Australia Bank Ltd. in Sydney. The figures are also close to the Reserve Bank’s expectations for the economy, which means “they’ll probably sit on their hands for another month and review the data.”

Today’s report adds to global evidence of an economic rebound. U.S. GDP rose at a 5.9 percent annualized rate in the fourth quarter, according to a government report on Feb. 26, marking the best performance in the world’s biggest economy in more than six years. The economy of China, Australia’s largest trade partner, grew a faster-than-anticipated 10.7 percent in the fourth quarter from a year earlier.

Fiscal Stimulus

Australia’s expansion is being boosted by spending by Prime Minister Kevin Rudd’s government, which is outlaying A$22 billion ($20 billion) on roads, railways, ports and schools. Business investment is also surging as resources companies expand capacity to meet Asia’s rising demand for iron ore, coal and energy.

The economy would have contracted in three of last year’s four quarters had it not been for government stimulus, Swan said.

Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs.

Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said this week in a report.

Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half the level in Europe and U.S. economies.

More Jobs

“Labor-market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months,” Stevens said yesterday. Banks are becoming more willing to lend to businesses and “investment in the resources sector is very strong,” he said.

GDP growth will accelerate to an annual pace of 3.25 percent in the fourth quarter of 2010, the Reserve Bank forecast last month.

“If anyone is going to boom, surely it’s Australia,” Gerry Harvey, chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd., said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.”

House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark.

The chain price index, a measure of retail prices, climbed 0.9 percent in the fourth quarter from a year earlier, today’s report showed.

Jacob Greber, Bloomberg, March 3

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