National Accounts data released this morning by the ABS show solid growth in the Australian economy, although the effects of severe drought are now showing a significant impact.
GDP increased by 0.3 per cent in the September quarter to be 2.2 per cent higher than a year ago. Farm production fell by 10.0 per cent in the September quarter. Abstracting farm production, non-farm GDP grew by 0.6 per cent to be 2.6 per cent higher than a year ago.
The ABS National Accounts feature article “Impact of the drought on agricultural production in 2006-07” suggests that the drought will directly subtract around 0.5 of a percentage point from overall economic growth in 2006-07. The ABS notes that the production of wheat, barley and canola could fall by over 60 per cent, and that agricultural income in 2006-07 is expected to be at its lowest level since 1994-95.
Household consumption continues to grow moderately, increasing by 0.7 per cent in the September quarter to be 2.8 per cent higher than a year ago. Household incomes grew more quickly than consumption expenditure, as households benefited from tax cuts and increases in family benefits introduced in the 2006-07 Budget. Dwelling investment grew by 0.6 per cent in the September quarter and is beginning to recover following a mild slowdown.
New business investment fell by 1.7 per cent in the September quarter but is 4.3 per cent higher than a year ago. New business investment remains at a very high level, accounting for 14.7 per cent of GDP (in nominal terms) in the September quarter, well above its 30-year average. Business profits grew strongly in the September quarter, with corporate gross operating surplus growing by 3.3 per cent to be 10.1 per cent higher than a year ago.
In the September quarter, mining production increased by 8.0 per cent, reflecting strong growth in oil production. There was also strong investment in mining exploration, with mineral and petroleum exploration expenditure increasing 20.9 per cent in the September quarter to be 44.8 per cent higher than a year ago. Mining output is expected to increase strongly in the period ahead, underpinned by over $37 billion of investment since the start of 2004.
The terms of trade increased by 2.0 per cent in the September quarter, and are now at their highest level since the early 1950s. Export volumes grew by 0.7 per cent in the September quarter, to be 6.0 per cent higher than a year ago. Despite the drought, rural exports grew strongly in the quarter due to an increase in livestock slaughtering and a run-down in cereal inventories. Imports fell by 1.1 per cent in the quarter, as capital goods imports continue to fall following strong growth in 2004 and 2005. As a result of the growth in exports combined with falling imports, net exports made its largest positive contribution to GDP growth since the March quarter 2001.
The household consumption chain price index increased by 0.5 per cent in the September quarter to be 3.0 per cent higher than a year ago. As for the Consumer Price Index, growth in the national accounts measure of consumption prices has been significantly boosted by the temporary effects of higher fuel and fruit prices.
Compensation of employees grew by 1.8 per cent in the quarter, to be 7.0 per cent higher than a year ago. The quarterly growth was principally driven by strong employment growth, with non-farm compensation per employee increasing by 0.7 per cent in the quarter to be 3.9 per cent higher than a year ago, in line with other wages measures.
The September quarter national accounts show signs that the expected transition in the composition of growth from investment to exports is taking place. However, in the period ahead growth is likely to remain modest, reflecting the effects of the severe drought. As the economy enters its 16th consecutive year of economic growth, high levels of business investment and strong profitability are laying the foundations for ongoing prosperity.