5 June 2013

National Accounts - March Quarter 2013

Today's National Accounts highlight the resilience of our economy in the face of difficult conditions abroad and big economic transitions here at home. The Australian economy continues to expand at a solid pace, growing by 0.6 per cent in the March quarter to be 2.5 per cent larger than a year ago.

The Australian economy has achieved one of the fastest growth rates in the developed world over the past year, outpacing every major advanced economy, and growing around three times as fast as the OECD average. Australia has also managed to achieve solid growth when around half of all advanced countries that have released March quarter results contracted over the year.

Solid growth in the quarter reflects a strong contribution from net exports as well as solid growth in consumption.

Exports continue to be a major contributor to economic growth, increasing by 1.1 per cent in the March quarter and by 8.1 per cent over the past year – which is the second fastest annual growth in well over a decade. Over the year, this growth has been driven by non-rural commodity export volumes, particularly iron ore and coal. This trend is expected to continue as the resources boom shifts from unprecedented growth in investment towards the production and export phase, as major new mining and energy projects are completed. The strength in the resources sector was also evident in mining production, which increased by 1.5 per cent in the March quarter, with coal and iron ore major contributors to that result.

While exports and production in the resources sector were up in the March quarter, a slowdown in mining investment activity contributed to a 4.3 per cent fall in new private business investment. This was also consistent with the decline in import volumes, with capital imports falling by 12.3 per cent in the quarter, making a positive contribution to net exports. While the investment phase of the mining boom is near its peak, the quarterly fall in new private business investment is also likely to reflect the usual lumpiness associated with resource investment given the large scale of individual projects. Despite the quarterly decline in new private business investment, it remains around 50-year highs as a percentage of GDP, at 17.5 per cent.

Looking forward, the outlook for business investment remains positive for 2013‑14, with the Australian Bureau of Statistics' Private New Capital Expenditure and Expected Expenditure (CAPEX) survey pointing to further upgrades in mining investment intentions, up from already high levels. The Bureau of Resources and Energy Economics also suggests there is substantial resource investment still to come, with the pipeline of committed resources projects standing around a record high $268 billion.

While the Australian economy remains resilient, conditions are patchy in some sectors, reflecting difficult global conditions, the ongoing impact of the high Australian dollar and the transition underway in the economy towards non-mining growth sources. Despite these challenges, it's encouraging to see low interest rates continue to gradually support activity in non-mining sectors.

Growth in household consumption strengthened in the March quarter, to be 0.6 per cent. However, households remain cautious in their spending and borrowing behaviour, with the household saving ratio ticking up slightly to 10.6 per cent in the March quarter. New dwelling investment increased by 2.2 per cent in the quarter to be 10.2 per cent higher over the past year – the strongest annual rise in 10 years. Forward indicators also support a positive outlook for housing construction. Encouragingly, the CAPEX survey also points to an improvement in non-mining business investment in 2013-14, and the recent depreciation of the dollar will provide further support to the outlook if sustained.

Growth in nominal GDP — the dollar value of goods and services produced in the economy — strengthened to 1.3 per cent in the March quarter, an increase from the very low rates of growth recorded in the second half of 2012. The gross operating surplus of private non‑financial corporations grew by 4.0 per cent in the March quarter, a return to growth after five consecutive quarterly falls. While these developments are welcome, nominal GDP growth still remains at a very weak 3.0 per cent through the year, reflecting the subdued growth in profits and prices across the board over the past year.

The GDP deflator — a broad measure of the prices of goods and services produced in the economy — increased by 0.8 per cent in the March quarter, supported by a 2.7 per cent increase in the terms of trade. Domestic price growth remained weak and, if recent falls in commodity export prices are sustained, the terms of trade are less likely to support growth in the GDP deflator in coming quarters.

The National Accounts show continued growth in labour productivity, market sector labour productivity growing by 2.0 per cent over the year, which is above its long term trend.

The Australian economy continues to show considerable resilience, as one of the strongest economies in the developed world. Growth remains solid, unemployment is low and inflation is contained. The economy is now 14 per cent larger since the Government came to office, outperforming every major advanced economy, with four of these economies contracting over this period.

While the transition in our economy won't be seamless, Australia's strong economic fundamentals and supportive macroeconomic settings provide a strong foundation for continuing growth as the mining boom shifts from the investment phase to production and exports, and the broader economy transitions to non‑mining drivers of growth. The Government is supporting this transition by taking a responsible approach to fiscal policy which supports jobs and growth, gives the RBA scope to maintain historically low interest rates, and makes room for the smart investments in our future.