Peter Costello

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National Accounts: September Quarter 2004



Today’s National Accounts indicate that economic activity slowed in Australia in the September quarter 2004. Gross Domestic Product (GDP) rose by 0.3percent during the quarter, to be 3percent higher through the year. Domestic demand continued to grow at a solid pace, driven by strong growth in household consumption. While the external sector subtracted from growth, the large increase in the terms of trade provided a significant boost to domestic incomes.

Household consumption rose by 1.1percent in the September quarter and by 5.4percent through the year. Household consumption continues to be supported by high levels of consumer confidence and robust employment growth. However, a slowing in the housing sector and sustained high oil prices are expected to have a moderating influence on consumption over the coming quarters.

Dwelling investment declined by 1.1percent in the September quarter, with new dwelling investment down by 0.9 percent and alterations and additions down by 1.2percent. The forward indicators of dwelling investment point to further modest falls in activity in the period ahead.

Business investment rose by 0.8 percent in the September quarter and remains at very high levels. Machinery and equipment investment increased by 4.6percent, while non-dwelling construction fell by 6.8percent as some major projects were completed. The prospects for business investment remain favourable, supported by high levels of capacity utilisation, sound corporate balance sheets and healthy profits. Although private non-financial corporate profits fell by 0.2percent in the quarter, profits were 9.4percent higher through the year. The profit share of GDP at 26.8 per cent is still at near record levels.

Net exports subtracted around 0.8 of a percentage point from GDP in the September quarter. Exports fell by 3.2percent, but were up by 4.7percent through the year. The fall in exports in the quarter was broadly-based, with declines recorded in rural and non-rural commodity exports, manufactures, and to a lesser extent, service exports. Imports rose by 0.8percent in the quarter, to be 13.5percent higher through the year. Growth in import volumes was underpinned by imports of capital goods.

The terms of trade rose by a further 2.3percent in the quarter and by 10.8 per cent through the year. This reflected higher export prices, which rose by around 10 per cent over the year and a fall in import prices. Australia’s terms of trade is now at its highest level since 1974.

Farm production rose by 0.6percent in the Septemberquarter, following an increase of 28.5percent in 2003-04. Subdued growth in farm production was reflected in weaker rural commodity exports. Recovery in the farm sector is expected to continue, although concerns persist over the possibility of continuing dry conditions.

Despite slower growth in the September quarter, the outlook for the economy is positive. An easing in domestic demand from the exceptionally strong growth rates of 2003-04 has been in prospect for some time. While export growth has been held down by capacity constraints and a high exchange rate, the strong world economy and large investments in the resources sector should see growth in Australian exports improve in the period ahead.

Prospects for the Australian economy remain favourable with the unemployment rate at 27 year lows, moderate wage outcomes and low inflation.


1 December 2004

Contact: David Alexander
02 6277 7340

1 Dec 2004

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