Today's National Accounts paint an extraordinary picture of exceptional growth in the March quarter, and showcase the rock-solid economic fundamentals which put our economy in a league of its own, despite ongoing global turbulence.
Gross Domestic Product rose by a stunning 1.3 per cent in the quarter to be 4.3 per cent higher through the year, underpinned by a broad-based surge in business investment and strong growth in household consumption.
This is a remarkable outcome and reaffirms Australia's position as one of the strongest economies in the world, with the Australian economy growing faster than every single major advanced economy in the March quarter. In through the year terms, this result is the fastest growth in over four years, which have been the most turbulent in the global economy since the Great Depression of the 1930s.
These figures come at time when many advanced economies are struggling to grow at all, with a number of economies already in recession and suffering crippling levels of unemployment. Europe faces profound economic challenges and this continues to cast a shadow over the global outlook. Despite these global challenges, the contrast between many advanced economies and the Australian economy could not be more stark.
Household consumption grew by a strong 1.6 per cent in the quarter and 4.2 per cent through the year, which is above its long term trend. Consumption growth was broad-based in the quarter, with continued strength in the consumption of services, but also of goods, with consumers taking advantage of price discounting by retailers. At the same time, households continued to strengthen their balance sheets, with the household saving ratio remaining high at 9.3 per cent in the quarter, supported by strong growth in household incomes.
The other key driver of growth in the quarter was business investment, with the record pipeline of investment continuing to power ahead. New private business investment grew by 5.5 per cent in the quarter to reach new record levels, and is 20.0 per cent higher through the year. This was driven by exceptional growth of new engineering construction, which increased by nearly 20 per cent to be over 50 per cent higher through the year – one of its fastest annual rates in about 30 years.
The outlook for investment is extremely positive, and supported by a record pipeline of planned investment, particularly in resources. The Australian Bureau of Statistics' Private New Capital Expenditure and Expected Expenditure (CAPEX) survey released last week reported that businesses expect to spend $173 billion on capital expenditure in 2012‑13, an increase of 23.5 per cent from the corresponding estimate for 2011-12.
Expected capital expenditure for the mining industry in 2012-13 is $119 billion, over 40 per cent higher than the corresponding estimate for 2011-12, which, if realised, would be more than two and a half times higher than actual capital expenditure in 2010‑11. This huge investment pipeline is powering ahead in full knowledge of both the Minerals Resource Rent Tax and the price on carbon pollution, both starting on 1 July this year.
The Bureau of Resources and Energy Economics recently announced that the total planned pipeline of resources investment had reached half a trillion dollars, with more than half of these projects at an advanced stage. While the roll-out of large resource projects is likely to result in some volatility in the quarterly investment figures in the period ahead, the investment pipeline will support strong and sustained growth in business investment, and provides a bedrock of support for our economy in these uncertain global times.
Public spending was largely flat in the quarter as all levels of government continued to consolidate their fiscal positions. This means that most of the strong growth in the quarter was driven by the expanding private sector.
Exports fell 1.3 per cent in the quarter, driven by a decline in non-rural commodity exports, but are 6.3 per cent higher through the year. The quarterly decline largely relates to unfavourable weather conditions, with cyclone activity in Western Australia causing supply disruptions to iron ore production. Some of this weather-induced weakness in exports should be unwound in the next quarter. Weak global conditions and the high Australian dollar also weighed on services exports in the quarter.
Imports rose 1.2 per cent in the quarter driven by growth in consumption goods imports and service imports. Imports are now up over 11 per cent over the year, reflecting the pickup in capital goods imports associated with the surge in business investment.
As expected, the terms of trade declined by 4.3 per cent in the quarter, driven by a decline in commodity prices from weaker global conditions and increased global commodity supply. However the terms of trade remain close to record highs, and conditions in our region are likely to support a high terms of trade for some time.
The fall in the terms of trade and the impact of the sustained high dollar was reflected in falls in profits in the March quarter. Private non‑financial corporate gross operating surplus fell 4.9 per cent in the quarter, and gross mixed income fell 2.1 per cent.
Compensation of employees increased 2.5 per cent in the quarter, reflecting a combination of growth in average earnings and employment.
Despite clear signs of economic strength, there continues to be an uneven pattern of growth across our economy. Headwinds from a weak and volatile global economy, the high dollar, and structural changes underway in our economy continue to weigh on some sectors. While fragile global conditions are clearly weighing on confidence, trade and financial markets, today's report is a resounding endorsement of the strength and resilience of the Australian economy.
In the face of challenging global conditions and major structural change, the Australian economy has an exceptional combination of strong growth, low unemployment, a record pipeline of investment, at the same time as contained inflation and falling interest rates.
Today's figures provide more compelling evidence that Australia's economy is very well positioned to meet any challenges thrown at it by turbulence in Europe or broader uncertainty in parts of the global economy.
These outstanding results are another testament to the resilience and hard work of the Australian people, and to the Government's record of achieving world-beating results for our economy through turbulent global times.