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

6 March 2013

National Accounts - December Quarter 2012

Today's National Accounts highlight the enduring resilience of the Australian economy against a challenging global economic backdrop.

The Australian economy grew by 0.6 per cent in the December quarter and 3.1 per cent over the past year, far outstripping every major advanced economy and the vast bulk of the developed world.

Australia has managed to achieve solid growth in the December quarter at a time when around half of all advanced economies contracted, including five major advanced economies. Australia's around-trend growth rate over the year is more than four times the OECD average.

Solid growth in the quarter was underpinned by strong growth in export volumes, with positive contributions from new business investment, consumption and dwelling investment.

Exports were the largest contributor to quarterly growth, growing by 3.3 per cent, the second fastest quarterly increase in almost a decade. This was supported by strong rises in coal and iron ore exports. A number of major investment projects in the mining and energy sectors have reached or are about to reach completion stage, and this will contribute to a further ramp up in export production and an improvement in productivity growth over the next few years.

We are already seeing an emerging upswing in productivity growth, with market sector productivity growth up 3.3 per cent over the year to December. This is considerably higher than its average of the past ten years of 1.5 per cent per year.

While the Australian economy remains resilient, conditions are patchy in some sectors and we have not been immune to difficult and unusual global conditions. The terms of trade fell a further 2.7 per cent in the December quarter to be 12.9 per cent lower over the past year, driven by a further decline in non-rural commodity prices. At the same time, the Australian dollar sits at sustained high levels. This unusual combination has weighed on profitability and contributed to subdued growth in prices across the board. Private non‑financial corporate gross operating surplus fell 3.4 per cent in the quarter.

The effect of this is that nominal GDP — the dollar value of the goods and services produced in the economy — grew by 0.5 per cent in the December quarter and by only 2.0 per cent over the past year. It is unusual for nominal GDP to grow this slowly, and this continues to drag on the Government's revenue collections.

Households remain cautious, with their consumption growing by 0.2 per cent in the December quarter to be 2.8 per cent higher over the past year. Strong growth was recorded in the food and purchases of motor vehicles categories in the December quarter, while hotels, cafes and restaurants subtracted from growth. The household saving ratio remained above 10 per cent in the December quarter, with households continuing to consolidate their balance sheets. The recent uptick in consumer confidence, if sustained, may provide support to consumer spending going forward, along with the impact of low interest rates.

Dwelling investment increased by 2.1 per cent in the December quarter, the fastest quarterly growth since June 2010, and follows signs of stabilisation in the previous quarter. Improvements in forward looking housing indicators like approvals data and house prices continue to point to a modest recovery in housing construction activity, supported by low interest rates and rising household incomes.

While private business investment declined in the quarter, this was driven by the sale of an asset from the private sector to a state-level public corporation. New private business investment, which excludes this one-off factor, increased by 1.2 per cent in the December quarter to be 14.1 per cent higher over the past year, with continuing high rates of investment in the mining and energy sectors. This result was driven by a 3.7 per cent increase in new engineering construction, which is up by a massive 33.8 per cent over the past year. As a result, new private business investment reached a record high as a per cent of GDP.

The ABS has not published growth in new building construction for data confidentiality reasons, but this series has also grown strongly in recent quarters. New machinery and equipment investment fell 2.5 per cent in the December quarter after 4.4 per cent growth the previous quarter, but it too remains at very high levels.

The Australian Bureau of Statistics' Private New Capital Expenditure and Expected Expenditure (CAPEX) survey points to ongoing growth in the mining sector in 2012-13 and 2013-14, with early signs investment intentions have lifted in some service sectors. However investment intentions are still subdued in other parts of the non-mining economy, with the high dollar continuing to work against the impact of recent interest rate cuts.

While lower global commodity prices towards the end of last year weighed on some investment decisions, the latest estimate by the Bureau of Resources and Energy Economics suggests that the pipeline of committed resources projects stands at a record high $268 billion. While the mining investment boom is gradually transitioning into the production phase, mining investment is still expected to be at historically levels for some time yet.

Domestic price pressures remain relatively subdued. The implicit price deflator for household consumption increased by 0.5 per cent in the December quarter to be 2.4 per cent higher over the past year, similar to the 2.2 per cent increase recorded by the Consumer Price Index over the same period. The GDP deflator — a broad measure of prices received by producers across the economy — fell by a further 0.1 per cent in the December quarter to be 1.1 per cent lower over the past year. This has also contributed to the continuing slow growth in nominal GDP.

While the global economic environment remains challenging and the transition from mining to non-mining drivers of growth may not be seamless here at home, today's national accounts reaffirm Australia's position as one of the most resilient economies in the world. Not only is our economy more than 13 per cent larger than when the Government came to office, but unlike many other advanced economies, we have solid growth, low unemployment, contained inflation and low interest rates.