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National Accounts Show Annual Economic Growth Of 3.1%

The Australian economy grew 0.5% in the September quarter, bringing the annual growth performance through the year to 3.1%.

The Treasurer, Wayne Swan, described the growth rate as “around trend.. which is faster than every single major advanced economy”.

As they did following yesterday’s interest rate cut by the Reserve Bank, Swan and his Liberal shadow, Joe Hockey, disagreed on the meaning of the growth figure.

  • Listen to Wayne Swan’s press conference (28m)
  • Listen to Joe Hockey’s press conference (8m)

Text of a media release from the Treasurer, Wayne Swan.

National Accounts — September Quarter 2012

Today’s National Accounts demonstrate the ongoing resilience of the Australian economy in the face of a difficult and volatile global environment.

Despite global headwinds, Gross Domestic Product rose by a solid 0.5 per cent in the September quarter, building on strong growth in the first half of 2012. This takes Australia’s growth performance through the year to around trend at 3.1 per cent, which is faster than every single major advanced economy.

Our economy has achieved this solid growth performance amid global turbulence, along with low unemployment and strong investment, at the same time as inflation remains contained and interest rates are low – a combination that Australian can feel proud of and confident about.

While conditions remain patchy in some parts of the economy, growth in the quarter was reasonably broad-based, underpinned by strong business investment, modest household consumption, a lift in exports and an accumulation of inventories. There were also encouraging early signs of an improvement in housing investment. There was positive growth in all private expenditure components, with only public demand declining. This shows that the Government’s fiscal consolidation continues to be more than offset by growth in the private sector.

The solid growth the Australian economy achieved in the quarter is impressive given significant global weakness and one of the sharpest falls in global prices for non-rural commodities since the global financial crisis. Growth in our major trading partners slowed noticeably in mid-2012 as a relapse into recession in the euro area and subdued recovery in the United States weighed heavily on growth in emerging Asia, and Japan suffered a sharp contraction.

While the Australian economy remains resilient, the September quarter National Accounts show the substantial impact of the fall in commodity prices on our terms of trade and nominal GDP growth.

The outcome for GDP growth is broadly consistent with forecasts presented in the 2012-13 Mid?Year Economic and Fiscal Outlook, including forecasts for record levels of business investment, higher non-rural commodity export volumes and solid growth in household consumption. Household consumption rose 0.3 per cent in the September quarter to be 3.3 per cent higher through the year, at around its trend pace. Households continued to maintain strong balance sheets in the September quarter, with the household saving ratio remaining high at 10.6 per cent.

New business investment continued to power ahead in the September quarter, rising 5.6 per cent to be 12.3 per cent higher through the year. New business investment in the quarter was boosted by robust growth in both engineering construction and machinery and equipment, which rose 8.9 per cent and 6.2 per cent respectively. As a result, new business investment is now at 50-year highs as a percentage of GDP 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 $173 billion this financial year, following capital expenditure of $155 billion in 2011-12.

Miners expect to spend over $109 billion on new capital in 2012-13, which is 33 per cent higher than mining capital expenditure in 2011-12. While lower global commodity prices have weighed on some investment decisions, the latest estimate by the Bureau of Resources and Energy Economics suggests that the pipeline of committed resources projects stands at a record high $268 billion.

Encouragingly, dwelling investment rose 0.7 per cent in the September quarter, its first quarterly increase in over a year. Investment in the detached housing market increased by 5.3 per cent, its fastest pace since June 2010. This is consistent with recent finance and approvals data which tentatively point to a modest improvement in housing construction activity, supported by low interest rates and rising household incomes.

Exports rose 0.8 per cent in the September quarter, and are 4.7 per cent higher through the year. All major categories of exports increased in the quarter; non-rural commodity exports rose 0.6 per cent largely reflecting an increase in mineral fuels, elaborately transformed manufactures rose 0.8 per cent, services exports rose 0.9 per cent and rural exports rose 2.4 per cent. Imports rose 0.1 per cent in the September quarter to be 3.5 per cent higher through the year.

Public final demand fell 2.0 per cent the September quarter but is 1.2 per cent higher through the year. Public corporations investment recorded strong growth of 19.9 per cent in the September quarter partially reflecting investment in rail and energy infrastructure and the rollout of the National Broadband Network.

Australia’s terms of trade fell 4.0 per cent in the September quarter to be 13.7 per cent lower through the year, reflecting significant falls in the prices of our key non-rural commodity exports.

The average spot prices for iron ore and coal fell between 10 and 20 per cent in US dollar terms between the June and September quarters reflecting continued weakness in the major advanced economies, an easing of growth in emerging Asia and seasonal destocking by Chinese steel mills. Iron ore spot prices have since recovered around two-thirds of their decline, but coal prices have remained at lower levels.

Non-rural commodity prices and Australia’s terms of trade are expected to decline gradually over the medium term as increased global supply comes on line, but remain elevated by historical standards – underpinned by continued strong demand from emerging Asia.

Lower commodity prices, the sustained strength of the Australian dollar and changed household spending behaviour are weighing on corporate profitability in some sectors of the economy. Private non?financial corporate gross operating surplus fell 1.3 per cent in the quarter, while gross mixed income fell 2.6 per cent. At the same time, compensation of employees fell 0.3 per cent in the quarter, but remained 4.6 per cent higher through the year.

While the global economic environment remains challenging, today’s National Accounts again affirm Australia’s position as the most resilient advanced economy in the world. The Government continues to invest in our economy and our people so we can convert our success into enduring economic gains for all Australians.

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Malcolm Farnsworth
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