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Wayne Swan, you were right, too. Australia is on course to achievea budget surplus in 2012-13, as your May budget predicted. Andwhile the economic growth numbers are not a complete game-changerfor the markets, they certainly move the goal posts. The next rate cut is further away than previouslythought. An unfriendly interpretation of the March quarter national accountsis that the Reserve Bank was so right in its call in the firstmonths of this year that the economy was in good shape that itactually got Tuesday's decision, to cut rates by a quarter of apercentage point to 3.5 per cent, wrong. But that does not stand up to scrutiny either. Tuesday's quarter ofa percentage cash rate cut to 3.5 per cent addresses negativefeedback loops that are externally sourced: downturns in sentimentand confidence that are flowing from Europe's debt crisis and signsof economic weakness in China and the United States, andcontaminating economic activity as businesses and households delayspending decisions. The 'risk-off' slowdown in decision-making and spending is apost-March phenomenon, and the Reserve knew on Tuesday that itcould respond to it without straying from its task of controllinginflation. The relatively high interest rate policy it maintaineduntil May 1, when it cut its cash rate by half a percentage point,kept a lid on inflation, creating room for rates to be pushedlower. It is possible that these March quarter growth numbers will berevised down, just as the growth numbers for last year were revisedslightly upwards yesterday. The June quarter growth number willalmost certainly be less spectacular. But Australia is well placed. One of the keys is that the bulk ofthe growth in the March quarter came out of the private sector.Private gross fixed capital formation contributed 0.8 percentagepoints of growth in the March quarter. New engineeringconstruction, in the resources sector mainly, rose by 19.7 percent. Resources sector spending will soften as the year progresses asminers trim their expansion in response to lower commodity prices,but it will still be a positive force. Household spending was alsosurprisingly robust, rising 1.6 per cent in the quarter, and by 4.2per cent for the year. It added 0.9 percentage points to growth inthe quarter. Manufacturing was still a drag, subtracting 0.1 per cent fromgrowth in the quarter, but other sectors thought to be strugglingin the face of weak demand, a high Australian dollar and relativelyhigh interest rates ahead of the Reserve's big rate cut in Mayposted growth contributions - of 0.1 per cent in the constructionsector for example, 0.2 per cent in the financials services sectorand 0.1 per cent in the retail sector. Stimulus is also literally in the mail. Almost $2.5 billion will bedeposited in bank accounts in the next few weeks, in the form ofcarbon tax compensation payments and the Schoolkids Bonus. An extended European recession and relatively slow growth in Chinawill continue to bear down on commodity prices and Australianincome. Rate cuts later this year are still likely. The Reserve also deliberately avoided providing guidance on rateswhen it cut rates this week because it knows that the next decisionhangs on the effectiveness of Europe's response to the sovereigndebt crisis, and the bank balance sheet losses it is generating. The June 17 Greek election is one hurdle and the recapitalisationof Spain's banking system is another. The Spanish government isacknowledging now that it needs help to recapitalise its banks andclaiming that the bill is only €40 billion ($A51 billion),well below market estimates of up to €100 billion. Its call for a full bailout-austerity package to be bypassed infavour of an injection of money directly into the Spanish banks orinto the Spanish fund set up to rescue them is being resisted byGermany, however, and the situation is finely balanced. Statementsfrom the European Central Bank today and the US Federal Reservetomorrow may provide guidance. Still, based on yesterday's amazing economic growth report, ourcentral bank now has a rate cut banked, as insurance. Far frombeing behind events as many including me had supposed, it is ahead,where it always wants to be. mmaiden@theage.com.au. The e-commerce company in China offers quality products such as Rear Trunk Spoiler Manufacturer , China Led Daytime Driving Lights, and more. For more , please visit Honda Element Fog Light today!
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