The National Accounts released today show the performance of the economy up to the end of the September quarter. This is the economy the Coalition has inherited.
It shows an economy that is growing below trend, with a soft labour market, cautious consumers and plateauing business investment. The economy grew by 0.6 per cent in the quarter and by 2.3 per cent from a year earlier.
Combined with other economic data it is clear that the nominal growth forecasts in the PEFO will not be reached. This points towards a further deterioration in the Budget bottom line.
Economic growth has now been below 3 per cent, or sub-trend, for four consecutive quarters. This is not strong enough to generate jobs for all Australians who want a job.
Net exports were responsible for 90 per cent of the growth in the economy in the past year. An increase in exports and an improvement in the trade balance are welcome, but these numbers emphasise how little growth is being generated by domestic spending. This composition of growth is also problematic for job creation, with the resources sector — where most of the export growth is happening — needing fewer workers per dollar of production than the rest of the economy.
In terms of the composition of growth in the September quarter:
- Household consumption is subdued – rising by 0.4 per cent.
- Dwelling investment fell by 0.5 per cent, with an increase in spending on new dwellings overshadowed by a fall in work on alterations and additions.
- Private business investment (excluding the impact of the sale of second hand assets) rose by 1.1 per cent, with new building and engineering construction increasing, but investment in machinery and equipment continuing to fall. Investment in the LNG sector continues to support engineering construction, but the drive to lower costs across the mining industry is weighing on investment in machinery and equipment.
- Public final demand fell by 0.1 per cent.
- Changes in inventories subtracted 0.5 percentage points from growth, partly from lower holdings of inventories in the manufacturing and wholesale trade sectors related to slower growth in mining investment.
- Net exports contributed 0.7 percentage points to growth, consistent with yesterday’s balance of payments data.
Nominal GDP, the dollar value of goods and services produced in the economy, increased by 0.6 per cent in the September quarter to be 3.6 per cent higher over the year. This rate of growth is relatively slow compared with the longer‑run average, and reflects continued falls in the terms of trade and slow growth in domestic prices.
The terms of trade fell by 3.3 per cent in the September quarter, leaving them 17.7 per cent below the peak reached in 2011. Most of the fall in the terms of trade over this period has been the result of lower world prices for Australia’s commodity exports. Export prices actually rose in the September quarter, but they were more than offset by a large rise in import prices. A fall in the value of the Australian dollar in the September quarter contributed to the rise in both export and import prices.
Compensation of employees — the total wage bill in the economy — increased by 0.6 per cent, with higher average wages partly offset by a fall in employment. The national accounts measure of profits, gross operating surplus, increased by 1.2 per cent of private non‑financial corporations, supported by results in the mining sector.
Today’s numbers are a reminder of the tough trading conditions in the economy, particularly outside of the mining sector.
On a positive note, some of the pre‑conditions for stronger growth are in place: the exchange rate has fallen over the past year, wages are going through a period of slower growth, and interest rates are at historically low levels. And there are now some green shoots, with parts of the housing sector looking stronger, retail sales showing signs of strengthening, and confidence up for consumers and some parts of the business community.
The Government is acting swiftly to support this recovery in activity. As part of the Government’s positive plan to strengthen the economy and repair the Budget we are removing the carbon tax, removing the mining tax, and cleaning up Labor’s mess with relation to the debt cap.
Further, we are focussing on supporting the critical investments in private and public infrastructure through our $20 billion infrastructure plan to build the roads of the 21st century and address Australia’s infrastructure backlog.
Labor must cease its opposition to the Government’s economic initiatives and budget repair, and act to support growth and jobs.