The Australian economy continued its solid growth in the June quarter of 2001.
Today's National Accounts release shows that, in seasonally adjusted terms, GDP grew by 0.9 per cent in the June quarter following growth of 0.7 per cent in the March quarter. Australia's economic growth during 2001 is much stronger than any of the major OECD economies and stronger than most of the countries in Asia. The one-off transitional factors that led to a negative quarter of economic activity in December 2000 have now passed. Taking that into account, economic growth in 2000-01 as a whole was 1.9 per cent in year average terms, as forecast in the Budget. This strong growth is notwithstanding a world slowdown with some countries in the region now in recession.
Household consumption grew by 0.7 per cent in the June quarter, building on the very strong 1.8 per cent growth in the March quarter. Growth in household consumption was underpinned by 0.8 per cent growth in expenditure on retail goods in the June quarter. Household consumption was 3.4 per cent higher through the year to June 2001.
Dwelling investment rose by 3.6 per cent in the June quarter, following a modest 0.4 per cent fall in the March quarter. The housing sector has clearly stabilised following the sharp fall in activity in the second half of 2000, largely a consequence of the transition to the New Tax System. Forward indicators for housing construction are very positive, with a marked rise in private dwelling and finance approvals in recent months - consistent with strong growth in this sector over the course of 2001-02. The recovery in residential construction will be supported by historically low interest rates and the Government's First Home Owners Scheme.
New investment in non-dwelling buildings and structures grew by 1.7 per cent in the June quarter, driven by a solid 3.4 per cent growth in new engineering construction. Investment in new machinery and equipment fell by 9.0 per cent in the June quarter. However this component of investment has traditionally been very volatile from quarter to quarter. In year average terms, new machinery and equipment investment is estimated to have grown by a modest 1.3 per cent in 2000-01. The medium-term outlook for business investment remains positive, particularly in the capital intensive mining sector.
Net exports contributed 0.3 of a percentage point to GDP growth in the June quarter, following the strong 0.7 of a percentage point contribution to growth in the March quarter. Net exports are estimated to have contributed 2.0 percentage points to growth through the year to the June quarter 2001. The recent strong net export performance has contributed to a sharp decline in Australia's current account deficit, to 2.0 per cent of GDP in the June quarter. This is the lowest current account deficit in 21 years, and occurred despite a weakening world economy.
The household consumption chain price index, which is a broader measure of consumer prices than the CPI, increased by 0.9 per cent in the June quarter, in line with the 0.8 per cent increase in the CPI for the June quarter. Over the past year, both measures of consumer prices have been affected by a number of one-off and temporary influences, particularly the effects of higher world oil prices, and the impact of seasonal fluctuations on food prices, along with the one-off effects on prices flowing from the introduction of The New Tax System. Looking through these factors, inflation over the past year has remained consistent with the 2-3 per cent target band.
Non-farm average earnings (AENA) grew by 1.3 per cent in the June quarter. In through-the-year terms, AENA grew by 5.3 per cent, which includes a one-off ½ of a percentage point contribution from the increase in the superannuation guarantee charge on 1 July 2000. Other wage measures such as the Wage Cost Index and enterprise bargaining outcomes are increasing at a more moderate rate in the 3½ to 4 per cent range.
Private corporate profits in the non-financial sector fell by 4.2 per cent in the quarter, moderating from the strong growth in the March quarter, to be 5.9 per cent lower through the year to the June quarter 2001. This follows several years of very strong growth in profits.
Production growth in the June quarter was strongest in construction, manufacturing, transport and storage, and accommodation, cafes and restaurants. Most sectors experienced growth in production in the June quarter.
The June quarter GDP outcome points to a favourable medium-term outlook for the economy. There are clear signs that construction activity has begun to pick up and is poised for strong growth during 2001-02, with households now taking advantage of the more generous First Home Owners Scheme and benefiting from low interest rates and income tax cuts in 2000.
Uncertainties around the global economy pose the greatest risk to Australia's economic outlook. Persistent weakness in the US and Japanese economies have adversely affected many of Australia's trading partners in Asia and elsewhere and a further period of synchronised global weakness is in prospect. Nevertheless, with a competitive exchange rate and with low interest rates supporting a strong pick-up in housing construction, Australia is well positioned to tackle these challenges.