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National Accounts Show 3.7% Annual Economic Growth

The National Accounts figures released today show economic growth of 0.6% in the June quarter. The annualised growth rate if 3.7%.

Treasurer Wayne Swan said the figures showed that Australia’s economy grew faster than every single major advanced economy, not only in the June quarer but over the year to June.

Australia has now completed 21 years of consecutive economic growth.

  • Listen to Swan’s press conference – transcript below (18m)

Media statement from Treasurer Wayne Swan.

Today’s National Accounts reaffirm Australia’s position as one of the strongest economies in the world, and shines a light on our ongoing resilience in the face of significant international headwinds.

Gross Domestic Product rose by a solid 0.6 per cent in the June quarter, which builds upon exceptional growth in the March quarter, revised up to 1.4 per cent. This takes Australia’s growth performance to a robust 3.7 per cent through the year.

The National Accounts show the Australian economy grew faster than every single major advanced economy both in the June quarter and over the year to June, and has successfully completed a stunning 21 consecutive years of economic growth – a feat not matched by any other advanced economy over this period.

Australia’s economic performance in the June quarter was even more impressive against a backdrop of worsening global conditions, including a contraction in the euro area, moderating growth in the United States and the return of financial market turbulence.

Encouragingly, Australia’s economic growth was broad-based in the June quarter, with positive contributions from consumption, business investment, public final demand and net exports.

Household consumption rose 0.6 per cent in the June quarter and at an above-trend rate of 4.0 per cent through the year, despite the weak global environment continuing to weigh on consumer confidence. Consumption was underpinned by strong growth in household incomes, supplemented by the Government’s Schoolkids Bonus and Clean Energy Household Assistance, with payments to households totalling $2.8 billion in the June quarter. Households also continued to strengthen their balance sheets, with the household saving ratio rising to 9.2 per cent.

New business investment continued to strengthen, rising 0.9 per cent in the quarter to be 21.2 per cent higher over the year. New engineering construction continues to be the standout, growing 0.9 per cent in the quarter and a remarkable 60.0 per cent over the year – its fastest annual growth in over 30 years. Growth in engineering construction has been underpinned by projects underway in the resources sector.

New business investment, as a share of GDP, is at its highest level in 40 years and is expected to continue growing through 2012-13. The Australian Bureau of Statistics’ Private New Capital Expenditure and Expected Expenditure (CAPEX) survey released last week reported that businesses expect to spend a record $182 billion this financial year, an increase of around 20 per cent from the corresponding estimate for 2011?12.

Expected capital expenditure for the mining industry in 2012-13 is $119 billion, which is more than 40 per cent higher than the corresponding estimate for 2011-12. There is still more to come, with the Bureau of Resources and Energy Economics estimating that the pipeline of resources projects is worth around half a trillion dollars. While investment is lumpy quarter on quarter due to the large size of projects in the resources sector, the investment pipeline will continue to support strong and sustained growth in business investment.

While recent falls in global commodity prices have weighed on some investment decisions, more than half of the resources investment pipeline is at an advanced stage, standing at a record $260 billion according to the Bureau of Resources and Energy Economics. The value of resources projects that have progressed to an advanced stage has increased almost $90 billion in the past year alone. This means that the overall investment pipeline is more resilient to ongoing global volatility, providing ongoing support for our economy in these uncertain global times.

Resources investment will drive strong and enduring growth in Australia’s commodity exports, with the results of this growth already becoming evident. Increased shipments of non-rural and rural commodities drove 2.5 per cent growth in exports in the June quarter and an impressive 6.6 per cent growth through the year.

Imports rose 0.9 per cent in the June quarter to be 9.1 per cent higher over the year. The key drivers of imports growth in the quarter were capital and intermediate goods, consistent with the strength of new business investment.

Public final demand rose 1.9 per cent the June quarter and 2.4 per cent over the past year. One of the key drivers of growth was public non-financial corporations, underpinned by investment in rail and energy infrastructure in addition to the roll out of the National Broadband Network.

Dwelling investment fell a further 1.7 per cent in the June quarter, although there are tentative signs that housing construction activity may stabilise in the second half of the year, supported by low interest rates and rising household incomes.

As expected, Australia’s terms of trade fell 0.6 per cent in the June quarter to be 7.1 per cent lower through the year. While higher import prices drove the quarterly fall, export prices were down 4.7 per cent over the year to June. Continued weakness in the major advanced economies and more moderate growth in emerging Asia have tempered demand for energy and steel inputs. Coinciding with continued strong growth in supply, this has led to recent falls in coal and iron ore prices.

Notwithstanding the likelihood of further cyclical demand fluctuations in the future, the medium-term outlook is still for Australia’s terms of trade to remain above historical norms, underpinned by continued strong demand in our region.

Weak global conditions, lower commodity prices, the high Australian dollar and cautious household spending behaviour are weighing on corporate profitability. Private non-financial corporate gross operating surplus fell 0.6 per cent in the quarter and while gross mixed income rose 1.5 per cent, it remains lower over the year.

Compensation of employees increased 1.4 per cent in the quarter, reflecting moderate growth in both employment and average earnings.

While global economic conditions are likely to remain difficult for some time to come, today’s National Accounts demonstrate again our economic resilience and should give us confidence in the fundamental strengths of our economy as it completes 21 consecutive years of growth.

Transcript of Wayne Swan’s press conference on the National Accounts.

SWAN: Good afternoon. I just wanted to spend a bit of time taking you through the National Accounts today. The Accounts we’ve seen today do build on exceptional growth in the March quarter. Our economy in this quarter grew by a solid 0.6 per cent in the June quarter. This gives us above-trend growth through the year; and at a robust 3.7 per cent. That remains faster than every major advanced economy. I think it’s particularly encouraging to look at the drivers of growth today, because they are broadly-based and that means we haven’t got all of our eggs in the one basket.

But also I think today’s National Accounts are very special because they say much more about our economy and our country than just three months of numbers on a page. They confirm that the Australian economy has completed a remarkable 21 consecutive years of economic growth. Those 21 years of growth – during that time we’ve been up against a lot – they are a stunning achievement that leaves every other advanced economy in our wake. Just look at those figures.

No advanced economy comes close to our extraordinary streak of growth over this period, which is over twice as long as the next best performer. It’s a very, very strong result for Australia. It’s something I think that all Australians can be very proud of. In fact our economy has now achieved more straight years of economic growth to date than the G7 economies combined. And that is what is so stark in that chart.

But today’s numbers also say something about our world-beating growth record in more recent times as well. I think it’s particularly impressive when you consider the economic conditions that we’ve seen internationally through the June quarter. This was a period again of European turmoil, subdued US growth and a contraction in Europe after Europe had stalled in the March quarter. So pretty substantial headwinds in this quarter. Of course, our economy and budget are not immune from these international influences and we are not complacent about the challenges that we face at home.

But I think these figures today are a very stark reminder that our economy continues to walk tall in the global economy. We should all have confidence in our economic strengths. Now I just want to go through some of the detail and some of the complex interactions that you see in the figures.

GDP rose by 0.6 per cent in the June quarter and 3.7 per cent over the year. Now that comes after a spectacular figure in the March quarter of 1.4 per cent. Now that’s been revised up from 1.3 per cent when I last spoke to you about the National Accounts. Growth in this quarter was broadly based, with consumption, net exports, business investment and public demand all making positive contributions. That is a rare but very healthy combination; consumption, net exports, business investments and public demand combining to produce a very healthy outcome.

It’s particularly pleasing to see the healthy outcome in terms of household consumption, which rose by 0.6 per cent in the quarter to be above-trend at 4 per cent over the year. Consumption growth continues to be supported by low unemployment and rising household incomes, which of course have been supplemented in this quarter by the government payments to households. And at the same time consumers have strengthened their balance sheets, with the household saving ratio at 9.2 per cent. That brings me to business investment which can tend to be lumpy.

Business investment powered ahead to a new 40-year high, building on the surge we saw in the previous quarter. New business investment grew by 0.9 per cent, to be 21 per cent higher over the year – largely driven by engineering construction. Engineering construction alone is up a staggering 60 per cent over the year, the fastest annual growth rate in over 30 years. And business investment as a per cent of GDP has reached its highest point in 40 years at 17.1 per cent, and we expect it to be higher this year. This data is consistent with the capital expenditure data we saw a week or two ago, with business planning to spend a record $182 billion this year.

Now we have seen some recent falls in commodity prices, of course we know we’ve had a sustained high dollar and we know that that has weighed on some investment decisions – particularly for early stage projects. But none of these things diminish the enormous amount of investment that has already occurred, or the record $260 billion in the resource investment pipeline that is at an advanced stage. This is particularly spectacular because you can see here in the past year, in terms of commitment at the advanced stage is something like $90 billion – to take the advanced stage pipeline of resources to $260 billion. That is something that is an important economic driver for our country, not just now but for a long time to come. And they are decisions which are largely locked in, making that investment pipeline more resilient to ongoing global volatility. I think what is often forgotten in our public debate is that the benefits of this investment will endure well beyond the investment phase itself. Because what this investment is doing is lifting the long term capacity of our economy and of course paving the way for a very substantial increase in terms of export volumes.

We’re beginning to see the fruits of that in terms of the projects that are coming online. Growth in non-rural commodity exports has contributed to a strong lift in export volumes over the year, up 6.6 per cent, along with some strong growth also in rural exports. In fact this quarter, net exports made its largest contribution to GDP growth in over three years, contributing 0.3 percentage points in the quarter. Now it’s not just the private investment that’s boosting our economic capacity, there’s also in these figures the influence of critical infrastructure investment which has been funded by government.

We can see this in the solid 1.9 per cent growth in public demand in the quarter, which largely reflects infrastructure investments, including the ongoing roll-out of the NBN. So I think we’ve got a lot going for us here in Australia. But our budget in particular is not immune from challenging global conditions.

Now while our terms of trade do remain at high levels, we have seen further declines in coal and iron ore prices in recent months. What this tends to reflect is weak growth in advanced economies, more moderate growth in our region along with strong growth in the supply of these commodities.

Now combined with the sustained high dollar and a cautious consumer, this has put pressure on company profits and you can see that very clearly in the figures. Company profits declined 0.6 percent in the quarter. While we have budgeted for a decline in our terms of trade, commodity spot prices have fallen by more than we anticipated in May, and obviously there would be a further hit to the budget bottom line if these lower prices were sustained. And while we have sustained a decline in commodity prices, that will make our budget task harder, but we are absolutely committed to delivering a surplus in 2012-13. The Government does have a proven track record of delivering savings and we remain able and willing to do it again. So they’re some of the challenges. But the medium term outlook still remains strong. It hasn’t changed. We do expect commodity prices to remain at historically high levels over the medium term, supported by robust demand in our region. And of course we have the confidence that we can face the challenges coming from the region from our position of strength. Because what we have got is the best combination of growth, healthy consumption, a record investment pipeline, low unemployment, contained inflation, and of course at lower interest rates. And what you can see here is that the Australian economy continues to surge ahead relative to other major advanced economies. Our economy is now 11 per cent bigger than when the Government came to office. And you can see the very clear contrast with many of the other major advanced economies.

I just wanted to conclude by making a few comments on our current economic debate. Because I’ve been in this job at a time when we’ve faced the most difficult global economic conditions in over 80 years, and I think I’ve got some appreciation of the challenges. It is fair to say that the world is an uncertain place and of course, we do from time to time see evidence of softness in our own economy. In 21 years of continuous growth in this country there have been ups and downs. And of course there’ll be ups and downs in the quarters ahead.

But sometimes when I listen to the debate it seems to be conducted in some bizarro world where every challenge is magnified and every strength is ignored. Now I think it’s about time that we paid more attention to the strengths and the pluses in our economy and less to some of the commentary which magnifies the challenges and the downside of every figure. We’ve had 21 years of continuous growth, and of course our growth in the last four years has outperformed every other major advanced economy. That’s a bit like winning 21 premierships in a row, and winning the last four very, very comfortably. I think we should bring that appreciation of our economic strengths to our public debate. We should be proud of that outcome because it speaks to our resilience, to our strength – and to our national character.

The fact is that there are too frequently in our public debate those that are willing to go out there and try and scare the pants off investors, off workers, off pensioners, just to prove a partisan political point or to settle an old score. There’s simply too much taking the views of the loudest critics, or the most extreme or the most disgruntled vested interest in the community and taking that as the sole authority on our economic progress. What we’ve got to do is have much more perspective in our debate. We don’t need 30 negative stories for every positive one. Because as weve seen today through 21 years of continuous growth, and particularly through our performance over the past four years, there’s a hell of a lot to be very positive about. And of course as we go through this public debate we should think about who it’s really about. And who it’s really about is the millions of people out there who go to work every day, work hard and provide for their families. It’s not about the handful of people who dominate frequently in our national debate. So what we’ve got here is a very impressive economic record, owned by the Australian people, the product of their hard work. It’s a fantastic platform to face the future from, and it is the platform from which we should have a proper and balanced discussion about our economic prospects.

JOURNALIST: Who are these disgruntled vested interests?

SWAN: They’re all over the papers every day. Take any number of newspapers you want to line up today and you’ll hear all sorts of views…

JOURNALIST: (inaudible)

SWAN: They’re across the economy. The point I’m trying to make is we need to have a balanced discussion about our economic prospects, about the strength of our economy and we need to do it in a way which reflects the real performance of our economy, not the imagined one.

JOURNALIST: (inaudible)

SWAN: What we’ve seen from Gina Rinehart today is her $2 a day vision for Australia, along with her commitment to [get from] Tony Abbott a very big tax cut. That’s what weve seen from Gina Rinehart today. I don’t think that in this debate her views about cutting the minimum wage, about bringing in illegal workers, are ones that deserve the amounts of publicity they receive. As for the beginning of your question, I didn’t start this at all. The fact is that there’s been a loud commentary from a few vested interests over a number of years about how we should create wealth and how we should distribute the benefits of the mining boom. And there’s been a few vested interests that do expect to have a disproportionate say in that debate and a disproportionate say in its outcomes, and I’ve simply drawn that to the attention of the Australian people.

JOURNALIST: You said that there would be a hit to the bottom line if those commodity price falls were sustained. Is the advice that you’re getting from Treasury that it’s likely those price falls will be sustained and can you talk about the order, you know, the magnitude (inaudible) as a result…

SWAN: I don’t think anyone can responsibly do that. I think there’s been a lot of particularly irresponsible commentary about what if the spot price from a given day is translated into a trend for a year. That is not the way to go about this. I do acknowledge that if we have a sustained fall in commodity prices and if it is larger than the fall that we have already forecast in our budget figures, which is a fall in the terms of trade of something like five and three quarters of a per cent, if it’s larger than that, that will have a budget impact. But I’ve also said that it is not valid to take the spot price from a particular day or particular week and then translate that into an outcome for the year. If you talk to people in the sector – and I’ve spent a fair bit of time talking to people in the sector over the last couple of weeks – many of them have a more optimistic view about where this is going in the longer term than much of the material we read on a daily basis.

JOURNALIST: (inaudible)

SWAN: The interesting thing, Laura, is to look at the consumption figures here today. I mean they are quite strong. Consumption is running along at about 4 [per cent], trend consumption I think is about 3.2 [per cent] – that’s pretty healthy and it’s been remarkably healthy. But I think as we observed last time we met to discuss the National Accounts, there are changes going on in the way in which people spend their money. There’s no doubt that we’ve got strong income growth. When you look at what people are doing with that strong income growth there is solid consumption, but of course there’s a new healthy respect for saving as well. And it’s possible to have reasonably solid consumption and an increased savings rate while income growth is reasonably strong, which it is and we’re in a sense getting a very good outcome.

But in terms of the consumption, it’s also true that people are spending their money in different ways. So they are not necessarily consuming in retail like they consumed. So it’s entirely possible in the world in which we live that there are sectors out there that are not doing very well, that are impacted by a higher dollar, impacted by consumer caution, impacted by changes in consumer behaviour. All of those things combined, the technological change that’s driving the changes in the way in which people buy goods in the retail sector, the change in preference for services over the purchase of bulk goods, these sorts of things are all happening, so in that sense there is an economy and many industries in a difficult transition, like manufacturing is in a difficult transition, impacted by the higher dollar in particular. So there are lots of other changes going on underneath, which still mean that there are sectors which are facing difficult circumstances.

JOURNALIST: (inaudible) … what do you say to people who have been caught up in the recent job losses of the economy in transition, who don’t feel that they’re sharing the joy of 24 premierships in a row? They feel that I’ve lost my job, my cost of living is under pressure…

SWAN: Exactly. It should be about all of our people, including those people, absolutely. What I say to those people is the Government is doing everything we possibly can to keep our economy growing, and to make sure that we spread the benefits of that economic growth as broadly as we possibly can around our community. Which is why the centrepiece at the last budget was spreading the benefits of the boom around our country. The Government remains absolutely determined to ensure that as we grow, we grow together – we don’t grow apart.

One of the reasons why I wrote the essay in The Monthly earlier this year was to draw attention to the fact that we want more people to have a stake in our prosperity. And, yes, our economy is going to go through difficult transitions and that does require new approaches to a whole host of areas in public policy which the Government has been putting in place. On the one hand, a range of policies to lift our productivity over time which is what we’ve been talking about principally with the education reform package that the Prime Minister has been talking about. On the other hand the processes that we’ve been going through with the manufacturing sector to ensure that we can put in place policy settings which give them the greatest possible capacity to grow and to compete in this changed environment.

JOURNALIST: (Inaudible) … how much money was allocated into the contingency reserve to buy them and on reflection was that a reasonable amount given what has escalated…

SWAN: I think as the Resources Minister has said today – he’s given a comprehensive set of responses to all of these matters – he’s made the point that we didn’t think there was value for money. All I will say in addition is that there was no money allocated over the forward estimates. These were processes which would kick in beyond the forward estimates and yes obviously money would have been allocated beyond the forward estimates but that was all commercial-in-confidence.

JOURNALIST: (Inaudible)

SWAN: Well that’s three or four questions. Let me try and disaggregate and be swift. It’s hard to know where to start. The fact is that we account for all of our commitments twice a year. We do it in the mid-year update, otherwise known in the jargon as MYEFO, and we do it at budget time. Unlike any of our predecessors, we have not only made very substantial savings in our budgets to provide room for new priorities, weve also done it in MYEFO. There are a number of ways we have done that and we’ve done that because that is the responsible thing to do, and that will be what we do again when we bring down our mid-year update and when we bring down our budget next year.

Now that situation stands in sharp contrast with our political opponents who admitted on breakfast television that they had a $70 billion crater in their budget bottom line and are not intending at any stage as I gather to adhere to the Charter of Budget Honesty as we through next year and into the election and are proposing to tell the Australian people absolutely nothing about how they might fund their priorities or how they might go about constructing a budget. So with us, what you’ll see is what you have got, which is a government which has made $100 billion of savings over our past budgets, and $33 billion of savings in the last budget – that’s over five.

Weve shown a capacity to make savings and make room for our priorities and that’s what we’ll do again. When it comes to what will or what will not be in the mid-year update or the budget, I never engage in ruling in or ruling out any of those things. When it comes to the general question of tax, we have made our commitment to keep tax below the level of GDP that we inherited and they’re the metrics that we’ll use to govern what we do, because unlike our opponents we are responsible economic managers that have shown a proven capacity to manage a budget in some of the most difficult economic conditions in over 80 years. And on the Aussie dollar, I never, ever comment on the Aussie dollar.

JOURNALIST: How many more premierships do you think the economy will win?

SWAN: My priority is to put in place the fundamental reform that will drive prosperity for this country well into the future and that’s what drives us.

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Malcolm Farnsworth
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