Peter Costello

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National Accounts: June Quarter 2003



Australia's economy slowed but continued to grow in the June quarter, despite being buffeted by a weak global environment, the worst Australia-wide drought ever recorded, and a number of temporary international shocks.

Today's National Accounts show that Australia's GDP rose by 0.1 per cent in the June quarter and by 2.0 per cent through the year. Domestic demand remained robust, but weak world economic conditions, the drought, the appreciation of the currency, the war in Iraq and the SARS epidemic saw the second largest fall in Australia's exports in 15 years. Exports fell by 4.7 per cent in the quarter and subtracted 1 percentage point from overall GDP growth.

Service exports fell by 9.4 per cent, driven by a 16.6 per cent decline in travel services in response to health and security concerns relating to SARS and the war in Iraq. The continuing effects of the drought saw rural exports fall sharply again in the June quarter, bringing the total decline over the past year to around 27 per cent. Imports rose by 2.2 per cent in the quarter, with capital goods imports increasing in line with solid growth in plant and equipment investment.

Some of these adverse factors have since abated. Economic conditions in the United States appear to be gradually improving and growth in Australia's Asian trading partners looks set to strengthen in the second half of the year. Weather conditions have improved in recent months, with forecasts of solid grain crops underpinning an expected recovery in rural exports over the coming year. Overseas visitor arrivals have picked up sharply, providing some encouragement for the tourism industry.

The Australian economy grew by 2.7 per cent in 2002-03 in year-average terms, slightly below the Budget forecast for growth of 3 per cent. The non-farm economy grew by a strong 3.9 per cent in 2002-03. Agricultural income fell 36.8 per cent in the June quarter and 71.6 per cent over the last year. The ABS estimates that the drought reduced agricultural production by 28.5 per cent in 2002-03, subtracting 1 percentage point from overall GDP growth.

Robust growth in domestic demand in the June quarter was underpinned by household consumption, which increased by 1.2 per cent in the quarter, with retail trade and motor vehicle sales growing strongly. Consumer confidence has remained at high levels in recent months, supported by low interest rates and solid growth in incomes and wealth.

Private business investment rose by 1.8 per cent in the June quarter and a very strong 11.3 per cent over the past year. New engineering construction rose by 1.6 per cent in the June quarter and by 36 per cent over the past year. Looking forward, the ABS' third survey of capital expenditure intentions for 2003-04 points to another year of solid growth in business investment, with investment intentions particularly strong for buildings and structures.

Dwelling investment declined by 4.1 per cent in the June quarter, but activity remains at high levels following very strong growth in the sector over the past couple of years. Forward indicators of owner-occupied housing have picked up in recent months.

Corporate profits fell by 0.7 per cent in the June quarter, but were 6.3 per cent higher over the year, and labour income increased by 1.5 per cent in the quarter.

The June quarter National Accounts confirm that inflationary pressures in the economy remain in check. The household consumption chain price index fell by 0.2 per cent in the quarter and rose by 2.2 per cent over the year, broadly in line with the consumer price index.

Structural reform and prudent macroeconomic policies have ensured that Australia is well placed to meet the challenges of a weak global economy. The outlook for the economy remains favourable, with domestic demand retaining significant momentum, underpinned by historically high levels of consumer and business confidence. Moreover, Australia's external sector should benefit in coming months from improving weather conditions and the gradual recovery in the world economic environment.

2 September 2003
Contact: David Alexander 02 6277 7340


2 Sep 2003

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