The Australian economy showed robust growth in the March quarter 2007. National Accounts data released by the ABS this morning show that GDP increased by 1.6 per cent to be 3.8 per cent higher than a year ago. This is the strongest quarterly growth since the December quarter 2003.
Growth was broadly based, with strong contributions from household consumption and business investment, and a strengthening in export growth. While the non-farm economy is growing strongly, the drought continues to subtract from growth with farm production falling by 22.7 per cent over the past year.
Household consumption rose by 1.5 per cent in the March quarter to be 4.2 per cent higher than a year ago. Household consumption continues to be supported by strong employment growth, solid wages and increases in wealth. Dwelling investment increased by 1.5 per cent in the March quarter, reflecting an increase of 4.7 per cent in new and used dwelling investment. Dwelling investment is now 9.5 per cent higher than a year ago, after falling by 5 per cent over the previous year.
Business investment grew strongly in the quarter. Private business investment increased by 7.6 per cent, although quarterly growth was affected by the reclassification of Telstra from the public to the private sector. Adjusting for the effect of Telstra, private business investment increased by 4.8 per cent in the quarter. Engineering construction is continuing to grow strongly.
Business profitability, as measured by corporate gross operating surplus, rose by 4.4 per cent in the quarter to be 13.9 per cent higher than a year ago. Profitability is strong in a number of industries including manufacturing and retail trade. At 28.1 per cent, the profit share of the economy is at a record level.
The terms of trade are currently at their highest level since the 1950s. The increase in the terms of trade has supported strong growth in measures of national income, with real gross domestic income growing by 1.9 per cent in the quarter to be 5.4 per cent higher than a year ago.
Exports rose by 1.4 per cent in the March quarter to be 4.7 per cent higher than a year ago. A fall in rural commodity exports of 7.9 per cent in the quarter was more than offset by increases in other exports. Resource exports – led by coal, coke and briquettes – were up by 2.4 per cent in the quarter to be 7.5 per cent higher than a year ago, while exports of elaborately transformed manufactures increased by 4.4 percent in the quarter to be 6.7 per cent higher than a year ago. Imports increased by 2.2 per cent in the quarter reflecting strong growth in business investment and household consumption.
The National Accounts show that inflationary pressures remain modest. The household consumption chain price index grew by 2.2 per cent over the past year, and is consistent with growth of 2.4 per cent in the consumer price index over the same period.
The Australian economy is in the midst of its longest economic expansion since Federation. Since 1996 real wages have increased 20.8 per cent.
Strong investment growth is expanding the economy’s capacity and will sustain growth in the period ahead. The orderly adjustment to the strong terms of trade demonstrates the increased flexibility and resilience of the Australian economy. It underscores the importance of flexible wage fixing at an individual and enterprise level.
Sound economic management has led to Australian households enjoying a combination of the lowest unemployment rate in 32 years, solid growth in real wages and low inflation.