Today’s National Accounts show that economic growth in Australia slowed during the March quarter, following two quarters of very strong growth. Gross domestic product(GDP) grew by 0.2percent during the quarter, to be 3.2percent higher than a year ago. Despite moderate growth in the March quarter, underlying fundamentals remain strong. Business and consumer confidence are at high levels, employment growth is robust and price and wage pressures remain contained.
Farm production continued to grow strongly during the March quarter, increasing by 5.9percent to be 41.6 per cent higher through the year coming off the record drought of 2002. This ongoing strength has underpinned growth in rural commodity exports, which increased by 13.0percent in the March quarter, following a 7.9 per cent increase in the December quarter. The growth in farm production has also supported growth in other sectors of the economy, particularly the transport and storage sector.
However, the outlook for farm production remains uncertain given the possibility of continuing dry conditions. Soil moisture levels in crop-growing areas are low.
Household consumption has continued to grow strongly. Household consumption increased by 1.2percent in the March quarter to be 6.2percent higher through the year. Household consumption continues to be supported by high levels of consumer confidence and robust employment growth.
Private business investment fell by 1.1percent in the March quarter, but remains at very high levels. Increasing world growth, high levels of capacity utilisation and healthy corporate profitability continue to support business investment in Australia. Although profits of private non-financial corporations fell by 2.1 per cent in the March quarter, they were 6.5 per cent higher than a year ago and remain at historically high levels relative to GDP.
Consistent with the Budget forecasts for slowing growth, dwelling investment decreased by 1.3percent in the March quarter. Forward indicators of dwelling investment point to a further slowing of activity over coming quarters, although activity remains at a very high level.
Robust domestic spending and the effects of exchange rate appreciation saw the external sector subtract 1.4 percentage points from economic growth in the March quarter. Exports grew by 2.2percent, with rural commodity exports increasing substantially. Strong domestic demand contributed to a 7.0percent increase in imports in the March quarter.
Consistent with other measures of prices, the National Accounts confirm that both wage and inflationary pressures continue to be contained. Non-farm average earnings increased by 0.7percent in the March quarter, consistent with the increase in the Wage Cost Index over the same period. However, the recent increase in crude oil prices presents an upside risk to the inflation outlook.
Lower growth in the March quarter is consistent with rebalancing growth out of domestic sources to external sources over the year ahead. The strengthening international recovery should see Australia’s net export performance improve in the period ahead, assisted by the recent depreciation of the exchange rate.