NO.041

National Accounts: March Quarter 2001

Economic growth rebounded very strongly in Australia in the March quarter 2001.

Todays National Accounts show that, in seasonally adjusted terms, GDP rose

by 1.1 per cent in the March quarter and grew by 2.1 per cent through

the year. As predicted in the Budget, the slow down in the second half of 2000

largely reflected one-off factors such as the unwinding of the stimulus from

the Olympics and the transitional effects of The New Tax System on construction.

Most of the impact of these events is now likely to have passed. The National

Accounts again confirm that inflationary pressures remain low.

Household consumption grew by 2.2 per cent in the March quarter, the

strongest quarterly growth since September 1994. The growth in consumption

was underpinned by exceptionally strong services growth of 4.2 per cent (the

strongest in 25 years), and supported by very strong growth in retail trade

expenditure of 1.9 per cent. Purchases of new motor vehicles have moderated

from the September quarter peak in sales but remain at historically high levels.

Dwelling investment rose by 0.8 per cent in the March quarter, coming

off the sharp decline in activity in this sector in the September and December

quarters, unwinding the record level in the June quarter 2000. Forward indicators

for housing construction, such as private dwelling approvals and finance approvals,

have strengthened over recent months, consistent with solid growth in this

sector over coming quarters. The recovery in residential construction will

be greatly assisted by recent cuts in interest rates and the Governments $14,000

grant for new housing under the First Home Owners Scheme. The benefits of these

policy changes for new home owners, and the expected positive impact on residential

construction, are yet to be fully realised.

Investment in new plant and machinery rose by 2.0 per cent in the March quarter

to be 2.3 per cent higher than a year ago, after falling 5.6 per cent in the

previous quarter. New investment in buildings and structures rose by 2.3 per

cent in the March quarter, driven by a 3.7 per cent increase in new engineering

construction, after falling substantially over the past two years following

the peak in 1998-99. The medium-term prospects for business investment are

positive, with investment in both plant and equipment and non-residential construction

expected to grow solidly in 2001-02. The return to growth in both residential

and non-residential construction has removed the two major drags on growth

in the second half of 2000.

Net exports contributed a strong 0.8 of a percentage point to GDP growth in

the March quarter and 2.3 percentage points to growth through the year. The

recent strong net export performance has also contributed to a sharp decline

in Australias current account deficit, to around 2.8 per cent of GDP

in the March quarter well below the average of the 1990s and markedly below

earlier peaks of more than 6 per cent of GDP.

The National Accounts confirm that inflationary pressures remain low. The household

consumption chain price index, which is a broader measure of consumer prices

than the CPI, increased by 0.9 per cent in the March quarter. This

is slightly lower than the 1.1 per cent increase in the CPI for the March quarter.

Both measures of consumer prices were affected by a number of one-off and temporary

influences, particularly rises in food prices as a consequence of floods. Looking

through these effects, inflation in the March quarter remained consistent with

the 2 3 per cent target band.

Non-farm average earnings (AENA) grew by a strong 1.6 per cent in

the quarter. In through-the-year terms, AENA grew by 4.3 per cent, including

a one-off 0.5 percentage point contribution from the increase in the superannuation

guarantee charge on 1 July 2000. The National Accounts wages measure is running

a little above a range of other measures of wage increases, such as the Wage

Cost Index and enterprise bargaining outcomes, which are in the 3 to 4 per

cent range. Most wage measures point to a gradual step up in the rate of wage

increases, although not yet to rates that would threaten the inflation target

band, provided trend productivity growth remains solid.

Private corporate profits in the non-financial sector rose by a very strong

7.8 per cent in the quarter to be 3.8 per cent higher through the year

to the March quarter. Profits remain around historical highs at around 25 per

cent as a share of GDP.

Production growth in the March quarter was particularly strong in communication

services, finance and insurance, accommodation, cafes and restaurants, and

construction. Manufacturing and cultural and recreational services showed falls

in production.

The medium-term outlook for the economy is very favourable. There are clear

signs that construction activity will pick up solidly over coming quarters,

with households benefiting from the more generous First Home Owners Scheme,

recent falls in interest rates and substantial tax cuts. Inflation remains

low and the current account deficit is around 20 year lows. The sharp fall

in stocks in the March quarter augurs well for stronger growth in spending

to feed rapidly into growth in production, particularly in the manufacturing

sector. Todays release indicates that the Budget forecast of 2 per cent growth

in 2000-01 will be readily achieved, and provides a solid base for the forecast

growth of 3 per cent in 2001-02.

CANBERRA

6 June 2001