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Last Updated: Wednesday, 7 September 2005, 08:05 GMT 09:05 UK
Buoyant spending boosts Australia
Sydney harbour and skyline
Building is continuing to feed Australia's economic growth
Australia's economy has expanded faster than expected on the back of its buoyant mining industry and a spurt of building and business investment.

Growth in the three months to June was 1.3%, well up on the previous quarter's 0.5% and the best showing in 18 months.

The figures from the Australian Bureau of Statistics mean Australia's economy is 2.6% bigger than a year ago.

Analysts said the data meant investment was outstripping consumer spending as the engine of growth.

Mining has been a key driver for the continued health of the Australian economy, as commodity prices have soared and pushed corporate profits up more than 10%.

On the other hand, imports have risen even faster, producing a growing trade deficit.

But that could be on the turn, economists say, and point to Australian firms' rapidly-expanding capital spending and solid profits.

There is no doubt that favourable world conditions are providing a boost to our economy," said Andrew Hanlan, senior economist at Westpac.

Despite the surge, growth remains below what is generally seen as the potential for the economy of up to 3.5% a year, meaning inflation could stay in check.

The June quarter marks a return to form after several quarters of slower expansion, and the government said it was now forecasting solid growth for the rest of the year - as long as sky-high petrol prices could be kept from causing consumption to slow down.

But some economists were less optimistic, warning that the capital spending might not last.

"It looks like this is a one-off," said Michael Thomas from money market broker ICAP, "and we will return to sub-par growth after this."

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