The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

1 June 2011

NO.062

National Accounts - March Quarter 2011

Today’s National Accounts demonstrate the major impact on the economy of extensive flooding and cyclone activity earlier in the year. 

GDP fell 1.2 per cent in the quarter to be 1.0 per cent higher through the year. Floods and cyclones are estimated to have reduced real GDP growth by 1.7 percentage points in the quarter, mainly through lower coal and agricultural production.  

The weakness in the quarter is broadly consistent with the Budget forecasts, which foreshadowed a negative March quarter.  This weakness is likely to be followed by a strong rebound in the June quarter as the economic impacts of the disasters ease and reconstruction picks up.

The impact of the natural disasters is most evident in the large falls in coal and iron ore exports, and the weakness in agricultural production and tourism exports.  Overall, the floods and cyclones are estimated to reduce real production by around $12 billion, of which $6.7 billion occurred in the March quarter. 

The impact of the floods and cyclones was most pronounced in export volumes, which fell 8.7 per cent - the largest quarterly fall in 37 years.

The floods inundated mines and covered and damaged key rail lines, causing significant losses to coal production and exports.  Coal exports were down 27 per cent in the quarter. The bad weather also disrupted iron ore operations in the Pilbara region, with exports of metal ores and minerals falling 7.7 per cent in the quarter.

Tourism exports were also badly affected by the floods, falling by 3.0 per cent in the quarter.  More generally, exports of manufactures and services were also weak partly due to the higher Australian dollar. 

Overall, net exports subtracted 2.4 percentage points from GDP growth in the quarter - the largest subtraction since records began in the September quarter of 1959.

The floods and cyclones also contributed to a fall in agricultural production, which declined by 10.2 per cent in the March quarter. Mining production fell by 6.1 per cent.

Profits fell in the March quarter, largely due to the impact of the floods.  Private non-financial corporate gross operating surplus fell 5.4 per cent in the quarter.  Mining profits fell 6.6 per and gross mixed income declined 1.5 per cent in the quarter.

However the impacts of the floods and cyclone mask positive outcomes in other parts of the economy.

While the natural disasters have taken a heavy toll on export volumes and agricultural and mining production, domestic final demand remained solid, contributing 1.3 percentage points to growth in the quarter.

Employment and incomes grew strongly in the quarter. Compensation of employees increased 2.9 per cent, reflecting strong growth in employment and wages. Despite the devastating effects of the floods and cyclones, nearly 75,000 full-time jobs were created through the March quarter, a very positive sign of the underlying strength of the economy.

However household consumption spending grew modestly with consumers remaining cautious. The household saving ratio increased to 11.5 per cent in the quarter, suggesting that households continue to take advantage of strong income growth to strengthen their balance sheets.

Dwelling investment rose 4.6 per cent in the quarter, although recent housing finance and building approvals data point to more subdued conditions in the period ahead.

New business investment grew strongly in the quarter, rising by 2.8 per cent.  This sharp pickup was underpinned by strong increases in engineering construction and in machinery and equipment investment, which more than offset continued weakness in non-dwelling building construction.

New engineering construction rose 2.5 per cent in the quarter, and is now up 21.0 per cent over the past year.  New machinery and equipment investment rose 6.3 per cent in the quarter and is now growing strongly - up over 10 per cent over the past two quarters.

The solid investment data are consistent with the Australian Bureau of Statistics’ Private New Capital Expenditure and Expected Expenditure (CAPEX) report released last week which pointed to a substantial increase in investment in 2010-11.  The survey indicates that businesses expect to spend around $124 billion on capital expenditure in 2010-11, an increase of over 14 per cent from the corresponding estimate for 2009-10.

The CAPEX survey shows that this increase is a precursor to even stronger growth in the period ahead as several large resource projects continue to ramp up. Expected total capital expenditure for 2011-12 is over 30 per cent higher than the corresponding estimate for 2010-11. Expected capital expenditure for the mining industry in 2011-12 is over 70 per cent higher than the corresponding estimate for 2010-11, highlighting the very bright outlook for the mining industry in particular.

The Government is making way for the expected surge in private business investment through the withdrawal of fiscal stimulus and the broader fiscal consolidation that is now underway.  Public investment spending fell by 0.7 per cent in the March quarter, underpinned by a fall in state and local spending, consistent with the withdrawal of the Government’s fiscal stimulus. 

It is estimated that the withdrawal of the fiscal stimulus detracted 0.4 percentage points from GDP growth in the quarter. More broadly, the Government is undertaking a record fiscal consolidation of 3.8 per cent of GDP over two years.

The terms of trade rose 5.8 per cent in the quarter to be over 22 per cent higher through the year, reaching their highest level since 1950-51.  This increase was reflected in a rise in nominal GDP of 0.7 per cent in the quarter, an increase of over 7 per cent over the past year.

Despite the temporary impact of this year’s natural disasters, our economic fundamentals remain some of the best in the developed world. Growth should recover strongly as mines return to more normal levels of production capacity. Unemployment is low and job creation is strong. Australia’s terms of trade are at record levels and a strong pipeline of mining investment is now well underway.

The Government will continue the strong economic management that has seen Australia fight off recession and create around 700,000 jobs so far.  In particular, the Government has delivered another responsible Budget to prepare our country for the opportunities ahead, and is getting on with the big reform tasks such as pricing carbon pollution.

CANBERRA
1 June 2011