Today’s September Quarter National Accounts make clear the very real risks to our economy and once again shows that economic growth in Australia or anywhere in the world cannot be taken for granted.
While the economy still grew by an encouraging 1.8 per cent through the year, it is not sustainable that real GDP contracted by 0.5 per cent in the September quarter.
Our economy is growing faster than every G7 economy other than the United Kingdom, slightly better than the United States and Canada and just above the OECD average, highlighting the work we must do to maintain and improve our competitiveness.
In nominal terms, which has the biggest impact on the Budget, the economy grew by 0.5 per cent in the quarter and 3 per cent through the year.
The contraction in real GDP recorded in the September quarter is not just a reminder, a wake-up call or a warning about being complacent when it comes to economic growth, it is a demand to support economic policies that drive the investment needed to support job security, the hours and wages that hard working Australians need to deal with rising costs of living – especially on energy and businesses, and the need to survive in a very tough and competitive economy.
Australia risks falling behind if we continue to fail to support growth through private non-mining investment. Businesses need the confidence to invest in machinery and equipment to improve productivity and drive purchases and sales in other business across the economy. This will also drive investment in people and support higher wages and working hours.
Last quarter’s weakness was broad-based. We cannot attribute it to one single event or one single sector and we must all do what we can to ensure how we have started 2016-17 is not how it will finish. We need this to be our 26th consecutive year of economic growth if we want to maintain the living standards that previous generations of Australians have enjoyed.
Consumption was the bright spot of the quarter, contributing 0.3 percentage points to growth and a solid 1.4 percentage points through the year. Households are continuing to do their part - they were out there buying from their local small business, using their hard earned wages to support their local communities. Compensation of employees rose 1.3 per cent in the quarter, the strongest quarterly growth in almost three years, driven by an increase in the number of employees and the number of hours worked. We also expect that households will continue to do their part in the December quarter as we have seen encouraging signs in retail sales and consumer sentiment.
Dwelling investment detracted slightly from growth in the quarter, however this was largely due to temporary weather-related events on the East Coast. As the ABS noted, we received above average rainfall over the quarter. The bad weather also affected non-dwelling construction and we also saw some large non-residential projects completed in the quarter. Nonetheless a large amount of dwelling and non-residential construction work remains in the pipeline and is expected to support activity in the period ahead.
Business investment continues to detract from growth as the unwinding of the mining investment boom continues. This is the 12th consecutive quarter that new business investment has declined. We know that mining investment is coming off steeply given the large scale of the projects that are coming to completion and the fact is that despite recent improvements, commodity prices remain well below the highs of a few years ago.
Non-mining investment also remains subdued and this is one of the biggest challenges we face. We need to support businesses to invest in this country. We need investment that will provide more working hours and higher wages for employees and do its part to take the place left from the decline in mining investment.
The Government plans to assist those businesses, especially small businesses via the Enterprise Tax Plan. We are providing the support these companies need to back themselves, back their employees and expand into new products and markets.
Uncertainty has also been weighing on investment decisions, especially in the period immediately following the Federal election and international uncertainty given the Brexit and US Presidential Election. Since the election the Parliament has worked effectively to pass legislation including more than $21 billion of previously un-passed Budget repair measures. We are implementing our plan and providing businesses with the certainty they need to invest.
After the strong result seen in the June quarter, public investment detracted 0.2 percentage points from growth. This is largely as expected given large one-off expenditures seen in the June quarter.
Net exports also detracted from growth in the quarter. While commodity prices are up, there were significant supply disruptions, some planned, seen in both the iron ore and LNG sectors. Exports of these commodities are still expected to continue to grow strongly over the period ahead. Net exports is still contributing to our through the year growth – adding 0.7 percentage points.
Despite what we have seen in mining exports, other parts of our economy are responding to international demand. Service exports are up 10.4 per cent through the year – the strongest growth in almost a decade.
While exports volumes growth was subdued in the quarter, we have seen some of the benefits from higher export prices flowing through to national income. Nominal GDP grew 0.5 per cent in the quarter to be 3.0 per cent higher through the year. This reflects our higher terms of trade which recorded the strongest quarterly growth since it peaked in 2011. The 4.5 per cent increase in the quarter reflected our stronger export prices, as well as weaker import prices.
The rise in the terms of trade supported income growth in the quarter. Real net national disposable income per capita increased 0.5 per cent in the quarter to be 1.7 per cent higher through the year. This is the strongest growth in our incomes seen in four and a half years.
However, we know the benefits are not flowing evenly across Australia. We know those in the mining states are still feeling the effects of the wind-up of the boom as seen in today’s numbers for Western Australia and Queensland. We know many South Australians were affected by the disruption to energy supplies seen in the quarter. We know those in the East Coast states were affected by weather-related events.
Our economy is in the midst of a difficult transition and today’s result underscores the need for strong economic reform and that is what the Turnbull Government is delivering on.