Australia's economy strengthens, but growth challenges remain

Australia's economy was stronger-than-expected in the first quarter of the year as exports and consumer spending boosted growth, data showed Wednesday, reinforcing a decision to keep interest rates on hold after two cuts this year.

The economy grew by 0.9 percent in the first three months of 2015, above analysts' expectations of 0.7 percent, to take the annual rate of growth to 2.3 percent, Australian Bureau of Statistics figures showed.

The latest figures came a day after the Reserve Bank of Australia kept interest rates on hold at a record low of 2.0 percent after two 25 basis points cuts this year.

"It's a good number but it's not a game changer for us or the RBA," JP Morgan economist Tom Kennedy told AFP.

"It's just more evidence that the Australian economy is now relying on net exports but growth is recovering after a very weak 2014. We think this year will be better and we think next year is going to be better again.

"So it is all part of this incremental improvement in growth."

Exports added 1.1 percentage points to GDP growth in the first quarter after jumping by five percent. Household spending increased by 0.5 percent to contribute 0.3 percentage points to GDP.

Non-dwelling construction fell the most, dropping by 4.9 percent during the January to March period to subtract 0.4 percentage points to GDP.

The RBA kept the cash rate on hold Tuesday but warned the economy was continuing to grow below-trend.

The central bank said while household spending had improved, business capital expenditure remained a "key drag" on private demand. It added that "the economy is likely to be operating with a degree of spare capacity for some time yet".