The June quarter National Accounts confirm that the economy is growing very strongly, with growth of 0.8 per cent in the quarter and 3.9 per cent through the year. This strong growth should support continued solid employment growth in coming months.

For the financial year 1997-98, the economy grew by 4.0 per cent, exceeding the 1997-98 Budget forecast of 3 – per cent. In the absence of the Asian crisis that outcome would have been even stronger.

A particularly encouraging aspect of the June quarter accounts was the 2.2 per cent growth in exports. The very strong export performance in the June quarter reflects a pick-up in exports to the most troubled Asian economies together with continuing success by exporters in diverting sales to more buoyant markets in the US and Europe.

While the Asian crisis and uncertainty in the international environment is having a sizeable impact on the Australian economy, the June quarter accounts confirm that this impact is occurring at a time when domestic spending is growing very strongly. Private consumption expenditure grew by 4.9 per cent during the year to the June quarter, while dwelling investment grew by 12.1 per cent..

Australia continues to grow at a rate well above the average of the industrialised countries.

One year into the Asian Financial Crisis Australia has sustained a 4 per cent growth rate and proven the strong economy of the region.

Private non-farm stocks increased in the June quarter, although at a rate slower than that now evident in the March quarter. The large increase in private non-farm stocks that was recorded in the first estimate for the March quarter has been substantially revised down and growth in domestic final demand has been revised up.

The level of stocks has increased substantially in the past two quarters, although it is likely that the majority of this would have been intended. The increase in private non-farm stocks followed a fall in the stocks-to-sales ratio to historically very low levels during 1997. Even allowing for a trend decline in the stocks-to-sales ratio reflecting continuing improvements in stock management practices, it is likely that a large part of the increase in stocks in the past two quarters reflects a restoration following an excessive run-down in stocks in previous quarters.

The National Accounts continue to be affected by a number of one-off transactions. In particular, the sale of the Dampier to Bunbury natural gas pipeline in the March quarter has lowered the measured growth rate of private non-dwelling construction and increased the measured growth rate of public investment in the June quarter. Abstracting from this sale, new private non-dwelling construction fell by 8.2 per cent in the June quarter. Plant and equipment expenditure also fell in the quarter, by 3.7 per cent. However private business investment grew 3.4 per cent during the year to the June quarter 1998.

The most recent Private New Capital Expenditure Survey suggests that businesses plan solid increases in investment in 1998-99. Expectations for investment spending in 1998-99 were 12.7 per cent above the expectations for spending in 1997-98 from the survey 12 months earlier. The strong increase in the profit share to historically high levels evident in the June quarter National Accounts will help to underpin business investment in 1998-99.

Growth in the June quarter occurred across a broad range of industries. Particularly strong growth was recorded in the health and community services and property and business services industries. The manufacturing sector recorded growth of 0.7 per cent in the quarter, following growth of 1.3 per cent in the March quarter.

The Accounts provide further evidence of Australia’s success in locking-in low inflation. The private consumption deflator rose by 0.4 per cent in the June quarter and by 1.1 per cent through the year, broadly in line with movements in underlying inflation.

2 September 1998

Canberra