The National Accounts for the final three months of last year were solid given the world was facing the most dire conditions in the global economy since the height of the financial crisis.
Gross Domestic Product rose by 0.4 per cent in the December quarter to be 2.3 per cent higher through the year in the face of serious turmoil in European economies over the quarter and patchiness in the domestic economy.
This result again underscores the Australian economy's strong fundamentals and enduring resilience in uncertain times, with economies like Germany, Japan, the U.K. and Italy contracting in the December quarter.
Despite our underlying strengths, we always said that global instability would impact our economy, and these headwinds have added to existing pressures from the sustained high dollar and the cautious consumer.
The global turbulence will also inevitably flow through to government revenues and the budget bottom line.
While today's figures highlight the difficulties we face, the Government remains determined to return the budget to surplus in 2012-13.
Our credible fiscal policy sends a message of confidence to the world in uncertain times, while also providing the Reserve Bank with maximum flexibility to respond to any further deterioration in the global economy.
In the face of the acute global turmoil, it was encouraging to see that economic growth in the quarter was driven by strong growth in exports and modest growth in consumption.
Despite the impact of global events on consumer confidence, household consumption grew moderately, rising by 0.5 per cent. In through the year terms, consumption grew by 3.5 per cent, which is around trend. The household saving rate remained elevated, consistent with the more cautious approach that consumers have been taking since the onset of the global financial crisis and in the face of ongoing global instability.
Exports increased strongly in the quarter, up 2.2 per cent, driven by growth in rural and non-rural commodity exports. Iron ore export volumes reached a record high in the quarter, rising by 6.1 per cent, and encouragingly, we continue to see the Queensland coal industry recover in the wake of last summer's natural disasters.
Imports increased 0.7 per cent in the quarter, a slower pace than in recent quarters. Imports of capital goods continued to grow strongly but this was offset by falls in imports of consumption goods, intermediate goods and services.
Business investment declined a little in the quarter after a very strong rise in the September quarter, but remains 18.9 per cent higher through the year. This outcome was held down by the lumpy nature of the investment pipeline, given the enormous scale of individual projects. Looking through the quarter-to-quarter volatility in the data, the outlook for investment is extremely positive, with the construction of major resource projects now well underway and further large projects in the pipeline.
The Australian Bureau of Statistics' Private New Capital Expenditure and Expected Expenditure (CAPEX) survey released last week reports that businesses expect to spend nearly $173 billion on capital expenditure in 2012‑13, an increase of over 28 per cent from the corresponding estimate for 2011-12. Expected capital expenditure for the mining industry in 2012-13 is over 50 per cent higher than the corresponding estimate for 2011-12.
We also saw a rebuild of inventories in the quarter, which contributed 0.3 percentage points to growth, following the detraction from growth in the September quarter.
Public spending across all levels of government made a small positive contribution to growth in the quarter, but remains 1.2 per cent lower through the year as governments continued to consolidate their fiscal positions.
The terms of trade fell 4.7 per cent in the December quarter, largely driven by a decline in commodity prices from weakness in Europe and increased global commodity supply. Despite the decline, the terms of trade remain very high by historical standards, and we have already seen some recovery in commodity prices in recent months. Conditions in our region are also likely to support a historically high terms of trade for some time.
The fall in the terms of trade combined with a sustained high dollar and cautious consumer was reflected in lower profitability in the quarter. Private non‑financial corporate gross operating surplus fell 2.7 per cent in the quarter, following strong growth earlier in the year. Gross mixed income rose 1.7 per cent, a better outcome, but still weak over the year.
Compensation of employees increased 0.9 per cent in the December quarter to be up 7.4 per cent over the year. The increase reflected both a rise in employment and average earnings.
Although growth moderated over the final three months of last year, Australia's fundamentals remain strong, reflecting the Government's strong economic management and the hard work and resilience of the Australian people.
Our low unemployment, sturdy public finances, very low debt, contained inflation, and huge pipeline of investment provide a solid foundation for our economy that will help us withstand the global turbulence we're likely to see continue for some time to come.
Despite the ongoing global uncertainty, Australians can be confident about our nation's prospects and solid economic fundamentals.