Todays National Accounts confirm that the Australian economy is growing strongly with growth of 1.3 per cent in the March quarter 1998 and 4.9 per cent through the year.
As evident in the National Accounts, the impact of the Asian crisis is occurring at a time when domestic spending is maintaining strength. While the pace of economic growth will slow over the course of 1998-99 (forecast of 3 per cent average growth), it will still remain very solid.
Australia is at or near the fastest growing industrialised country in the world. This strong economic growth will underpin continuing solid employment growth.
The quarterly National Accounts are volatile and care always has to be taken in interpreting any one quarters estimate. This applies particularly to the composition of growth in any one quarter. While todays first estimate suggests a fall in domestic final demand in the March quarter, first estimates can be subject to significant revision. Other indicators, such as employment growth and job vacancies, building approvals, credit growth, import growth and continued strength in trading performance in the business surveys all support the Budget estimate of strong domestic demand in 1997-98.
An increase in both private non-farm and public marketing authority (farm) stocks contributed substantially to output growth in the March quarter. Some business surveys suggest that there was an increase in imported stocks ahead of the waterfront dispute. More broadly, the increase in private non-farm stocks followed a fall in the stocks-to-sales ratio to historically very low levels. Even allowing for a trend decline in the stocks-to-sales ratio reflecting continuing improvements in stock management practices, it is likely that part of the increase in stocks in the March quarter reflects a restoration of an excessive run-down in stocks in previous quarters.
The increase in public marketing authority stocks is likely to translate into exports in subsequent quarters. The Australian Wheat Board (AWB) has indicated that there were delays in the purchase of wheat in February and March as buyers awaited an indication of likely price outcomes. Wheat normally shipped in February and March is expected to be shipped during the June and September quarters.
More recent indicators provide further evidence of strong domestic economic activity and point to a continuation of that strength. Building approvals rose by 8.3 per cent in April to be 19.5 per cent higher than a year earlier, supported by historically high levels of housing affordability. Estimates of consumer confidence and business sales remain high and continuing growth in employment and incomes will support strong private consumption expenditure. The most recent survey of private new capital expenditure points to increases in business investment in the June quarter 1998 and expectations for 1998-99 remain solid in line with Budget forecasts. Business investment will be underpinned by continuing growth in corporate profits, which grew by 3.5 per cent in the March quarter to be 7.5 per cent higher than a year earlier.
The Accounts have been affected by a number of one-off transactions. In particular, the sale of the Dampier to Bunbury natural gas pipeline increased measured private non-dwelling construction and reduced measured public investment. Abstracting from this sale, new private non-dwelling construction increased by 9.1 per cent in the March quarter.
Growth in the March quarter occurred across a broad range of industries. Particularly strong growth was recorded in the communication services and construction industries. The manufacturing sector recorded growth of 2.9 per cent in the quarter, while agricultural output grew by 2.6 per cent.
The Accounts provide further evidence of Australias success in locking-in low inflation. The private consumption deflator rose by 0.5 per cent in the March quarter and by 1.0 per cent through the year, broadly in line with movements in underlying inflation.