Peter Costello

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National Accounts June Quarter 2006



National Accounts data released this morning by the ABS show moderate economic growth with GDP growing by 0.3percent in the June quarter. GDP grew by 2.7percent in the financial year 2005-06, which is slightly higher than forecast in the recent Budget. Through the year growth was 1.9 per cent.

National income growth continues to be strong, with real gross domestic income increasing by 0.7percent in the June quarter to be 3.3 percent higher than a year ago. Gross operating surplus, the National Accounts measure of profits, grew by 1.6per cent in the June quarter, to be 6.7percent higher than a year ago. Compensation of employees grew by 2.0percent in the June quarter, reflecting solid wages and strong employment. The strength in incomes is due in part to the continued strength in the terms of trade, which increased by 1.9percent in the June quarter, to be at its equal highest level since 1974.

Household expenditure on consumption continues to be moderate. Household consumption grew by 0.6percent in the June quarter, to be 2.6percent higher than a year ago. Strong growth in household furnishings was offset by falling expenditures on the purchase and operation of motor vehicles.

New business investment grew by 2.6percent in the June quarter, to be 11.8percent higher than a year ago. Growth has been particularly strong in engineering construction, which grew by 4.8percent in the June quarter to be 21.6percent higher than a year ago. Dwelling investment grew by 3.7percent in the June quarter, but remains 4.0percent lower than a year ago.

Falls in inventories subtracted 0.8of a percentage point from growth in the June quarter. The run-down in inventories was broad based. Given the fall in the June quarter, inventories are likely to add to growth in the next quarter.

Exports grew by 1.4percent in the June quarter, to be 1.6percent higher than a year ago. Exports are expected to grow more strongly over the period ahead, particularly as mining investment projects come on line. Mining investment has risen by nearly 70percent over the year to the June quarter. Imports grew strongly in the June quarter, growing by 2.2percent to be 7.0percent higher than a year ago. As a result of strong growth in business investment, the largest contributor to import growth over the past year has been imports of capital goods.

Farm GDP fell by 4.7 percent in the quarter, to be 0.3percent lower than a year ago. Rural exports grew by 0.1percent, following an increase of 5.5percent in the March quarter. The outlook for the farm sector is mixed, with dry conditions affecting production, particularly in Western Australia.

The household consumption chain price index increased by 1.0percent in the June quarter to be 3.4percent higher through the year. Consistent with the recent CPI release, a major factor behind the increase in consumer prices over the past 12 months has been the increase in petrol prices. However, unlike the CPI release the increase in the price of bananas has had a relatively small impact on National Accounts measures of prices.

State final demand in Western Australia recorded very strong growth in the June quarter, growing by 5.6percent to be 14.0percent higher than a year ago. Other States grew more moderately in the June quarter. This reflects the disproportionate impact on growth that the high terms of trade is having on Western Australia, and to a lesser extent Queensland, compared with other States.

The past year has seen moderate growth as the economy experiences the transition from growth driven by consumption to growth driven by investment, and in the period ahead likely to be driven by exports. Over $32billion has been invested in the mining sector alone since the start of 2004. This investment is increasing the capacity of the Australian economy, and providing a basis for future economic growth. With Australia’s unemployment rate at its lowest level in 30 years, and the labour force participation rate at a record level, the economy is well placed to continue to deliver positive economic outcomes.

6 September 2006

Contact: Renae Stoikos
02 6277 7340

6 Sep 2006

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