Peter Costello

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National Accounts: December Quarter



Today's National Accounts show that Australia's GDP grew by 0.4 per cent in the December quarter 2002, and by 3.0 per cent over the year. Growth was underpinned by strong investment, particularly business investment in engineering, and machinery and equipment. Abstracting the direct impact of the drought, the non-farm economy remained solid, growing by 0.8 per cent in the quarter and 3.9 per cent over the year.

The good outcome in the December quarter National Accounts is against a backdrop of weak global economic conditions with the prospect of war and rising oil prices. During the quarter, Australia was in the grip of the worst drought in a century. Even so, the domestic economy has remained resilient.

Private business investment increased by 7.4 per cent in the December quarter, and was underpinned by a 14 per cent surge in new machinery and equipment investment. Strong investment by the business community reflects the favourable investment environment in Australia, with low interest rates, high levels of capacity utilisation and strong corporate profitability.

Household consumption increased by 0.6 per cent in the December quarter to be 4.1 per cent higher over the year, supported by strong growth in employment. Dwelling investment also contributed to GDP growth, rising 4.2 per cent in the quarter. Looking forward, residential construction is expected to ease in 2003-04, as activity in the sector passes its cyclical peak.

Total imports rose by 7.0 per cent in the December quarter, with strong business investment driving imports of capital goods up 16 per cent. Exports fell slightly, down 0.4 per cent, reflecting a large decline in agricultural exports partly offset by stronger growth in other exports.

The Drought

The drought continued to depress agricultural production and farm income. Agricultural production fell by 14 per cent in the December quarter, and was more than 24 per cent lower than a year ago.

Rural exports fell by 3.3 per cent in the December quarter, following a decline of 5.0 per cent in the previous quarter. This was mainly due to grain exports falling 30.8 per cent in the December quarter. Employment in the farm sector fell by 19 700 persons in the December quarter, following a decline of 39 300 persons in the September quarter.

The attached table shows the profile of the impact of the drought. The next large detraction will occur in the June quarter. If the drought breaks (with signs already emerging), positive effects could emerge in the second half of 2003.


Income growth moderated in the December quarter following the very strong growth of the past year. Gross mixed income fell by 1.6 per cent in the quarter, primarily reflecting declines in farm income. Compensation of employees increased by 1.4 per cent in the quarter, while corporate profitability remained strong.

National Accounts measures of prices and wages confirm that inflationary pressures in the Australian economy remain moderate. The household consumption chain price index rose by 0.6 per cent in the quarter and 2.7 per cent through the year.

The Government's pursuit of a broad range of structural reforms and prudent macroeconomic policies has ensured that Australia is well placed to meet the challenges of a weak global economy. As the OECD noted when it judged the Australian economy "one of the best performers in the OECD", structural change has made Australia notably resilient to internal and external shocks.

5 March 2003

Impact of the Drought on Agricultural Production - 2002-03

Line Chart: Impact of the Drought on Agricultural Production - 2002-03 ($billion)


Quarterly Growth Rates

Column Chart: Quarterly Growth Rates (per cent)

5 Mar 2003

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