Mining Exports Still Drive Australia’s Growth

SYDNEY—A decade of hefty investment in resource-rich Australia’s mining industry is paying off, with government data showing the economy grew faster than expected in the final three months of last year.

Gross domestic product climbed 2.8% from a year earlier and 0.8% from the third quarter, a report Wednesday showed, higher than the respective 2.5% and 0.7% increases economists were expecting.

Australia has benefited from a long mining-investment boom where companies such as BHP Billiton, Rio Tinto and Fortescue Metals have built mines, ports and rail infrastructure for exporting commodities to resource-hungry China and other industrializing Asian countries.

“This ramp-up in exports has a long way to run as new capacity in iron-ore, coal and liquefied-natural-gas production continues to come online,” said Paul Bloxham, Sydney-based chief economist at HSBC, Australia.

Still, the world’s 12th-biggest economy faces a challenge as mining investment nears a peak and threatens to drive unemployment up even more than the current 10-year-high 6% level. The central bank has been seeking to fire up other parts of the economy with record-low interest rates as the so-called mining boom cools.

Economists said that nearly all of the improvement in the fourth quarter came from the rising volume of coal and iron-ore exports. That has raised concern growth remains too dependent on the mining industry while other sectors supposed to take over the reins aren’t showing much signs of life.

“Where’s the rotation” in the drivers of economic growth, said Stephen Walters, chief Australia economist at J.P. Morgan.

Australia is in its 23rd year of economic expansion, but over the past two years has seen numerous resources companies scale back their spending and lay off thousands of workers as big projects in mining-focused states like Western Australia and Queensland near completion.

Companies have also wound back investment after commodities prices began tumbling alongside China’s slowdown. As a result, year-over-year economic growth rates have slowed from closer to 4% in early 2012—even as exports to Asia have been ramped up. Both the government and central bank are forecasting that, like in 2013, the economy will remain in a low gear throughout this year.

“We need to do better” to avoid further gains in unemployment, Australian Treasurer Joe Hockey told reporters on Wednesday. The central bank kept the benchmark cash-rate target on hold this week for the foreseeable future, saying it expected unemployment to rise before peaking. It has cut rates eight times since late 2011 to help lift the economy.