Today's National Accounts showing the Australian economy grew strongly in the September quarter are an exceptional result at a time of heightened global instability, turmoil in Europe and slowing global growth.
Gross Domestic Product rose 1.0 per cent in the September quarter to be 2.5 per cent higher through the year, underpinned by a surge in business investment and solid growth in consumption, despite increased turbulence in the global economy.
These figures are a resounding vote of confidence in our economy at a time when many advanced economies are struggling to grow at all, and face increasingly fragile economic positions with very high unemployment.
By comparison, in Australia household consumption continues to grow solidly, rising 1.2 per cent in the quarter and 3.8 per cent through the year, which is above its long term trend. Strong income growth has allowed households to continue healthy rates of spending while also strengthening their balance sheets, with the household saving rate increasing by 1.0 percentage point to over 10 per cent in the quarter. This is consistent with the more cautious approach that consumers have been taking since the onset of the global financial crisis and in the face of ongoing global instability.
The strongest driver of quarterly growth was business investment, with the unprecedented investment pipeline powering ahead at a rapid pace. New private business investment rose 12.7 per cent in the quarter and 21.9 per cent through the year. New machinery and equipment investment rose 6.7 per cent to be 19.3 per cent higher over the year. New engineering construction surged by 31.0 per cent in the quarter to be more than 50 per cent higher through the year - the strongest annual growth rate in about 30 years. While much of the increase was in the resources sector there was also a healthy increase in manufacturing investment.
The strong investment outcomes are further evidence of the massive pipeline of planned investment in Australia. The Australian Bureau of Statistics' Private New Capital Expenditure and Expected Expenditure (CAPEX) survey released last week indicates that businesses expect to spend $158 billion on capital expenditure in 2011-12, with expected capital expenditure for the mining industry nearly 60 per cent higher than the corresponding estimate for 2010-11. This unprecedented investment pipeline provides vital support to our economy in uncertain global times.
The roll-out of these large resource capital projects is likely to introduce some volatility into quarterly investment figures in the period ahead, given the massive scale of individual projects. Notwithstanding this, the investment pipeline will support a strong and sustained increase in business investment in the years ahead.
The wind-down in public spending that is underway is helping to make room for this current and prospective surge in private investment. Public spending declined by 2.5 per cent in the quarter as governments continued to consolidate their fiscal positions.
Exports increased 2.0 per cent in the quarter, driven by growth in non-rural and rural commodity exports. Encouragingly, the Queensland coal industry continues to recover from last summer's natural disasters, with coal exports rising 4.6 per cent in the quarter.
Imports rose 4.3 per cent, driven by a strong pickup in capital goods imports associated with the surge in business investment. Consumption imports also rose solidly in the quarter, with a large part of the increase due to the pick-up in car imports following a recovery from overseas supply disruptions earlier in the year.
The terms of trade rose 2.7 per cent in the quarter and 13.2 per cent through the year, reaching their highest level on record. While commodity prices have declined from recent peaks due to global uncertainty, weakness in Europe and increased global commodity supply, they are likely to remain at historically high levels for some time, supported by robust conditions in our region.
The strong growth in real GDP and the rise in the terms of trade in the September quarter continued to support rising incomes. Private non-financial corporate gross operating surplus rose 5.7 per cent in the quarter, partly reflecting strong mining profits. However there was also broad-based strength in profits, with non-mining profits rising by 4.7 per cent in the quarter.
Despite clear signs of underlying strength, global instability continues to have an impact on the economy, and is compounding the stresses felt by some sectors in our patchwork economy. This is reflected in the softer conditions experienced by sectors such as retail, parts of manufacturing, and some service industries such as tourism which are already under pressure from a cautious consumer and high Australian dollar.
Against this difficult backdrop some businesses continue to be wary, meeting some of the increased demand in the quarter by running down inventories. However this is not broad based, with other sectors such as wholesale experiencing both strong production and a run down in inventories due to stronger than expected sales. The change in inventories detracted around ¾ of a percentage point from GDP growth in the September quarter.
Despite the uneven pattern of growth, the solid performance of the economy overall reflects Australia's strong economic fundamentals. While fragile global conditions are clearly weighing heavily on confidence, trade and financial markets, Australia's economy is once again proving to be resilient.
Overall, today's result is consistent with the recently published Mid-Year Economic and Fiscal Outlook which forecast solid economic growth over the next year, underpinned by a substantial and growing pipeline of private sector investment spending, particularly in the resources sector.
Today's result underscores the underlying strength and resilience of the Australian economy and shows we are better placed than virtually any other advanced economy to deal with ongoing global instability and the unfolding crisis in Europe.
Australia strong economic fundamentals - solid growth, low unemployment, rising incomes, contained inflation, strong public finances and a huge pipeline of investment - reflect the Government's strong economic management and the hard work and optimism of the Australian people during difficult times.