Today’s National Accounts confirm solid underlying demand and a tight labour market but also an economy that is weaker than expected before the election, with significant challenges ahead.
Australians know there are significant challenges in our economy and the results today, and developments since the March quarter, confirm this.
Today’s results reflect slower than expected growth, the impact of supply constraints, and cost of living pressures that have continued to grow since the March quarter.
Real gross domestic product (GDP) has increased over the March quarter by 0.8 per cent to be 3.3 per cent higher over the year to March.
Quarterly growth was much lower than what was forecast by Treasury in the Pre‑election Economic and Fiscal Outlook (PEFO), which was 1.8 per cent for the March quarter.
Many of today’s results fall well short of what Treasury had been expecting in the recent PEFO.
While household consumption was relatively strong growing 1.5 per cent over the quarter, it was mixed across states and weaker than expected, due to a weaker than expected recovery in discretionary services.
Net exports detracted a significant 1.7 per centage points from GDP growth in the quarter.
This was due to a strong increase in imports, as businesses re‑built inventories and households’ demand for goods remained elevated.
Non‑rural commodity export volumes also fell 3 per cent in the quarter, as the devastating floods across Queensland and New South Wales impacted production and shipments.
Dwelling investment and business investment were both significantly held back by labour and capacity constraints in construction.
Dwelling investment fell 1.0 per cent in the March quarter to be 1.3 per cent lower over the year.
New business investment grew 1.4 per cent in the March quarter to be 3.6 per cent higher over the year.
Nominal GDP increased by 3.7 per cent over the quarter to be 10.2 per cent higher through the year, which was weaker than what was expected at PEFO, reflecting weaker real GDP and slightly weaker commodity prices.
Average compensation per employee fell by 0.7 per cent in the quarter to be only 2.2 per cent over the year.
The household consumption deflator – the National Accounts measure of prices facing consumers – increased by 1.5 per cent in the quarter and is up 3.2 per cent over the year.
This highlights the costs of living pressures impacting many Australian households.
While today’s results are backward‑looking, many of the economic challenges remain and have since become more substantial.
The cost of living has continued to increase steeply.
The Reserve Bank of Australia increased the cash rate last month with further rate rises expected.
Fuel and gas prices facing households remain elevated while electricity prices are set to increase.
Petrol prices have increased by around 12 per cent since the end of April.
As of last week, wholesale electricity prices have increased 237 per cent since the end of March.
Over the past month, average east coast gas spot prices have increased 319 per cent compared to 2019‑2022 spot prices.
Labour shortages and ongoing absenteeism continue to constrain businesses and put pressure on supply chains across the domestic economy.
We are still facing a highly volatile international environment with the ongoing war in Ukraine continuing to disrupt global supply chains, China’s COVID response likely to impact global growth, and global inflationary pressures continuing to evolve.
Collectively, these results will have implications for the Budget which is already riddled with rorts and weighed down with a trillion dollars of debt with not enough to show for it.
Despite the strong rise in the terms of trade in the quarter, it was less than what was factored in at PEFO, and there are other factors weighing on the Budget including the higher costs of borrowing on record debt.
We can’t afford to be complacent given the difficult Budget position that we are in.
We have inherited worst fiscal position of any incoming government since at least World War II.
These challenges are significant, but the Albanese Labor Government has immediately started work on building a better future for all Australians, including a stronger, broader and more sustainable economy.
This means a future powered by cleaner and cheaper energy, a better‑trained workforce with higher participation and key investments in the care economy, digital economy and a future made in Australia.
This will give Australians the best chance to earn a decent living, keep up with the skyrocketing costs of living, secure more opportunities and actually get ahead.
After everything we’ve been through and achieved together, I know the Australian people are up to this challenge, and they can be confident their Government is too.