Australia's Corporate Profits Surprise Economists; Assuage Fears

Stronger-than-expected corporate profits in January-March eased fears that the Australian economy might have contracted in the quarter. Nevertheless, while profits remain healthy, a recent economic report also reveals rising interest rates are increasing costs for the corporate sector, posing a threat to future earnings. Indeed, over the last seven months the Reserve Bank of Australia has increased the official cash rate 125 basis points to 6.0%.

Company profits before tax, net interest, and depreciation rose a seasonally adjusted 3.4% in the quarter. The Australian Bureau of Statistics also revised the data for the previous quarter, October-December, to a rise of 5.9% from 3.1%.

Some analysts feared a contraction in the January-March quarter after retail sales for the period declined 1.5% following a 1.4% surge in October-December. The company profit report adds to other data showing that although consumption may be weak, the income side of the economic equation is looking healthier than expected.

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