The National Accounts released today show that the Australian economy grew by 0.8 per cent in the December quarter and 2.8 per cent over the previous year.
Household consumption spending strengthened, rising by 0.8 per cent in the quarter and 2.6 per cent over the past year. This was accompanied by a fall in the household saving ratio to 9.7 per cent of disposable income.
Dwelling investment increased by 1.0 per cent in the December quarter. Low interest rates and rising existing house prices should help investment in new dwellings through 2014. Recent increases in dwelling approvals are consistent with this.
New public final demand grew in the December quarter, rising by 1.1 per cent.
The pattern of growth in today’s numbers shows an increasing reliance on the export sector. Exports of goods and services rose 2.4 per cent in the December quarter and Australia’s trade balance shifted into surplus. Net exports accounted for around two‑thirds of growth in the December quarter, while gross national expenditure (a measure of domestic spending) accounted for only a third. Much of this export growth is coming from the resources sector, which needs fewer workers per dollar of production than the rest of the economy.
New building construction fell 2.3 per cent in the quarter, new engineering construction declined 1.5 per cent and new machinery and equipment investment was 8.2 per cent lower. In total, new private business investment fell by 3.4 per cent.
Nominal GDP, the dollar value of goods and services produced in the economy, increased by 1.6 per cent in the December quarter. This was in part because the price of iron ore held up relatively well in the December quarter, with the terms of trade rising by 0.6 per cent after falling by 3.1 per cent in the previous quarter. World prices for both iron ore and coal have fallen since December, suggesting that the terms of trade may weigh on nominal GDP growth in the March quarter.
Compensation of employees, or the total wage bill in the economy, increased by 1.0 per cent in the December quarter. This likely reflects increases in bonus payments in some industries, with underlying wage growth and employment growth still relatively sluggish.
Profits were stronger in the quarter, with the gross operating surplus of private non‑financial corporations increasing by 4.9 per cent to be 10.3 per cent higher over the past year. Some of this strength reflects increasing exports from the resources sector.
Today’s numbers highlight the growth challenge that the economy will face in the next couple of years as construction on a number of large mining projects comes to an end.
The Coalition’s plan to reduce regulation and abolish taxes will help smooth the transition in the economy away from resource investment and toward growth in the non-mining sectors.
That will be key to boosting annual growth to more than 3 per cent, which is what’s needed to bring unemployment down.
Supporting consumer and business confidence over the next couple of years is also critical in this transition.
The Government is committed to removing the carbon tax and removing the mining tax to give businesses a fair and predictable playing field, allowing them to invest with confidence.
Governments spending needs to be directed to the highest priority areas, particularly to high quality infrastructure that will support private sector growth. Along with a focus on practical reforms to boost participation and productivity, these measures will build a basis for sustainable growth into the future.