Peter Costello

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National Accounts: March Quarter 2001


National Accounts: March Quarter 2001

Economic growth rebounded very strongly in Australia in the March quarter 2001.

Todays National Accounts show that, in seasonally adjusted terms, GDP rose by 1.1 per cent in the March quarter and grew by 2.1 per cent through the year. As predicted in the Budget, the slow down in the second half of 2000 largely reflected one-off factors such as the unwinding of the stimulus from the Olympics and the transitional effects of The New Tax System on construction. Most of the impact of these events is now likely to have passed. The National Accounts again confirm that inflationary pressures remain low.

Household consumption grew by 2.2 per cent in the March quarter, the strongest quarterly growth since September 1994. The growth in consumption was underpinned by exceptionally strong services growth of 4.2 per cent (the strongest in 25 years), and supported by very strong growth in retail trade expenditure of 1.9 per cent. Purchases of new motor vehicles have moderated from the September quarter peak in sales but remain at historically high levels.

Dwelling investment rose by 0.8 per cent in the March quarter, coming off the sharp decline in activity in this sector in the September and December quarters, unwinding the record level in the June quarter 2000. Forward indicators for housing construction, such as private dwelling approvals and finance approvals, have strengthened over recent months, consistent with solid growth in this sector over coming quarters. The recovery in residential construction will be greatly assisted by recent cuts in interest rates and the Governments $14,000 grant for new housing under the First Home Owners Scheme. The benefits of these policy changes for new home owners, and the expected positive impact on residential construction, are yet to be fully realised.

Investment in new plant and machinery rose by 2.0 per cent in the March quarter to be 2.3 per cent higher than a year ago, after falling 5.6 per cent in the previous quarter. New investment in buildings and structures rose by 2.3 per cent in the March quarter, driven by a 3.7 per cent increase in new engineering construction, after falling substantially over the past two years following the peak in 1998-99. The medium-term prospects for business investment are positive, with investment in both plant and equipment and non-residential construction expected to grow solidly in 2001-02. The return to growth in both residential and non-residential construction has removed the two major drags on growth in the second half of 2000.

Net exports contributed a strong 0.8 of a percentage point to GDP growth in the March quarter and 2.3 percentage points to growth through the year. The recent strong net export performance has also contributed to a sharp decline in Australias current account deficit, to around 2.8 per cent of GDP in the March quarter well below the average of the 1990s and markedly below earlier peaks of more than 6 per cent of GDP.

The National Accounts confirm that inflationary pressures remain low. The household consumption chain price index, which is a broader measure of consumer prices than the CPI, increased by 0.9 per cent in the March quarter. This is slightly lower than the 1.1 per cent increase in the CPI for the March quarter. Both measures of consumer prices were affected by a number of one-off and temporary influences, particularly rises in food prices as a consequence of floods. Looking through these effects, inflation in the March quarter remained consistent with the 2 3 per cent target band.

Non-farm average earnings (AENA) grew by a strong 1.6 per cent in the quarter. In through-the-year terms, AENA grew by 4.3 per cent, including a one-off 0.5 percentage point contribution from the increase in the superannuation guarantee charge on 1 July 2000. The National Accounts wages measure is running a little above a range of other measures of wage increases, such as the Wage Cost Index and enterprise bargaining outcomes, which are in the 3 to 4 per cent range. Most wage measures point to a gradual step up in the rate of wage increases, although not yet to rates that would threaten the inflation target band, provided trend productivity growth remains solid.

Private corporate profits in the non-financial sector rose by a very strong 7.8 per cent in the quarter to be 3.8 per cent higher through the year to the March quarter. Profits remain around historical highs at around 25 per cent as a share of GDP.

Production growth in the March quarter was particularly strong in communication services, finance and insurance, accommodation, cafes and restaurants, and construction. Manufacturing and cultural and recreational services showed falls in production.

The medium-term outlook for the economy is very favourable. There are clear signs that construction activity will pick up solidly over coming quarters, with households benefiting from the more generous First Home Owners Scheme, recent falls in interest rates and substantial tax cuts. Inflation remains low and the current account deficit is around 20 year lows. The sharp fall in stocks in the March quarter augurs well for stronger growth in spending to feed rapidly into growth in production, particularly in the manufacturing sector. Todays release indicates that the Budget forecast of 2 per cent growth in 2000-01 will be readily achieved, and provides a solid base for the forecast growth of 3 per cent in 2001-02.

6 June 2001

6 Jun 2001

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