4 December 2019

National Accounts - September Quarter 2019

Today’s National Accounts shows that the Australian economy remains remarkably resilient in the face of significant global and domestic economic headwinds.

The Australian economy has grown by 1.7 per cent through the year and by 0.4 per cent in the September quarter, within the range of market expectations. 

While other major developed economies like Germany, the United Kingdom, South Korea and Singapore have experienced negative economic growth this year, the Australian economy is in its 29th consecutive year of economic growth - a record unmatched by any other developed nation.

We have maintained our AAA credit rating - one of only 10 economies to do so from the three leading credit rating agencies.

We have seen our current account return to surplus for the first time in more than 40 years.

Welfare dependency is at its lowest level in 30 years.

We have delivered the biggest tax cuts in more than 20 years.

We have seen the first balanced budget in 11 years and we’ll be returning the Budget to surplus for the first time in 12 years.

The Budget is back in black and back on track.

Importantly, the labour market remains strong with more than 1.4 million new jobs created since we came to Government, the participation rate is around record levels and annual jobs growth is at 2.0 per cent – more than double the OECD average and nearly three times what we inherited when we came to Government.

In today’s National Account numbers, growth has been broad-based with household consumption, public final demand and net exports all contributing to GDP growth.

Household consumption increased by 0.1 per cent in the September quarter to be 1.2 per cent higher through the year. Expenditure increased in nine out of seventeen consumption categories.

Household disposable income grew by 2.5 per cent, the fastest quarterly rise in a decade with the ABS saying it was “driven by a decline in income tax payable and interest paid on dwellings as well as continued rises in the compensation of employees.”

This has led to an increase in the household savings rate to 4.8 per cent through the quarter.

As at the end of November 2019, the ATO has issued more than 8.8 million individual tax refunds for the 2018-19 year totalling around $25 billion, which is 30 per cent higher than a year ago.

Whether spent or saved, the tax cuts are putting households in a stronger economic position, making them more financially secure with more money in their pockets.

The economy continues to be supported by new public final demand, which includes spending across all levels of Government, which rose by 1.5 per cent in the quarter to be 4.9 per cent higher through the year.

Public final demand is being supported by the continued rollout of the National Disability Insurance Scheme, more money being spent on aged care, as well as the Government’s ten year $100 billion infrastructure pipeline.

Last month, the Prime Minister announced that the Government will bring forward $3.8 billion of infrastructure spending to ensure that infrastructure continues to support the economy and create jobs.

When you add the bringing forward of the infrastructure spending to the largest tax cuts in over two decades, along with more than $1 billion additional funding in drought relief, this amounts to $9.5 billion of additional near-term support to the economy that we have provided since the election.

Net exports contributed 0.2 percentage points to GDP growth in the September quarter, with strength in mining and services exports supported by a lower Australian Dollar and strong demand for these exports supported by the large number of free trade agreements that this Government has entered into since coming to office.

Through-the-year services exports growth has been above 6.0 per cent for the past five quarters particularly education related exports. 

The drought continues to have a devastating impact on Australian communities as well as hitting the bottom line of the Australian economy. Farm GDP is 5.9 per cent lower through the year to the September quarter and falling in four of the past five quarters. Rural exports fell by 2.8 per cent in the quarter.

After several years of strong growth, dwelling investment has fallen for the past year, and detracted 0.1 percentage points from growth in the September quarter. 

New business investment fell by 2.0 per cent in the quarter to be 1.7 per cent lower through the year. This was principally driven by falls in mining investment, which fell by 7.8 per cent in the quarter to be 11.2 per cent lower through the year, largely reflecting LNG projects transitioning from investment to production.

However, the outlook for the mining sector and mining investment is strengthening, with investment intentions from the capital expenditure survey suggesting that mining investment will grow solidly in 2019-20.

There was some strength in the construction of offices, hotels and warehouses in the quarter; non-residential building construction increased by 3.0 per cent in the quarter to be 4.2 per cent higher through the year.

Company profits increased by 1.7 per cent in the quarter to be 11.1 per cent higher compared to a year ago. Company profits were partly offset by a fall in mining profits of 2.3 per cent in the quarter but mining profits remain 23.1 per cent higher through the year.

Growth in compensation of employees, which measures the national wage and salary bill, was up 1.1 per cent in the September quarter to be 5.0 per cent higher through the year. Through-the-year growth has been above 4.0 per cent for the past eight quarters – the strongest run of growth since 2012 and above the 10-year average of 4.6 per cent.

Average earnings, as measured in the National Accounts, grew by 0.7 per cent in the quarter to be 2.9 per cent higher through the year, compared to 2.6 per cent, the ten-year average.

Importantly, living standards, as measured by the ABS’s preferred measure of real net national disposable income per capita, are 3.3 per cent higher through the year, compared to a long-run average of 1.5 per cent.

Productivity growth in the market sector was 0.1 per cent lower in the quarter to be 0.2 per cent lower through the year. This is why we are pursuing important reforms across the tax, deregulation, infrastructure and skills agendas.

In conclusion, Australia is not alone in facing significant domestic and global economic headwinds, but there are reasons to be positive about our economic future.

Standard and Poor’s said recently that the outlook for the Australian economy is “sound.”

Deloitte Access Economics said that the Australian economy is picking up with momentum.

The IMF and the OECD are forecasting Australia to grow faster in 2020 than any G7 nation.

And the Reserve Bank of Australia has said the economy has reached a “gentle turning point.”

The numbers today underline the economic resilience of the Australian economy and the need to stay the course and stick to the plan as outlined in this year’s Budget.