NO.061

NATIONAL ACCOUNTS – MARCH QUARTER 2005

National accounts data released this morning show that economic growth rebounded

in the March quarter2005, with GDPincreasing by 0.7percent in the quarter

and by 1.9percent through the year. Real gross domestic income continued to

grow more strongly than GDP, increasing by 3.5percent through the year to

the March quarter, as growth in the terms of trade supported domestic incomes.

Household consumption strengthened in the March quarter, growing by 0.8 per

cent after weaker growth in the December quarter. Consumption has moderated

from the very strong rates of growth recorded through 2003-04, but remains solid

at 3.4percent through the year to the March quarter. The effects of recent

strong employment and moderate wage growth should support household income in

future quarters, as will the tax cuts announced in the 2005-06Budget.

The dwelling sector continues to experience a relatively mild downturn following

the strong growth of 2003-04. Dwelling investment fell by 0.5percent in the

March quarter to be 3.8percent lower through the year. Forward indicators

of activity in the dwelling sector suggest that this moderate downturn will

continue over coming months.

Business investment fell by 2.6percent in the March quarter, following a

rise of 8.0percent in the December quarter, and is 11.1percent higher through

the year. Business investment continues to be supported by strong profit growth,

with corporate gross operating surplus (the National Accounts measure of profits)

increasing by 2.2percent in the March quarter. The profit share rose to 26.9percent

in the March quarter, just below the record high of 27.0percent in the June

quarter2004.

As indicated in yesterday’s Balance of Payments release, net exports

subtracted 0.3of a percentage point from GDP growth in the March quarter. Imports

grew by 2.0percent in the March quarter, while exports grew by 1.0percent.

A significant amount of investment has taken place in recent years— the

mining sector alone has invested around $27billion in additional productive

capacity over the past three years— and export growth should strengthen

over 2005-06 as a result.

Continued dry conditions in the rural sector restrained economic growth in

the March quarter. Farm GDP fell by 0.1percent in the March quarter to be

16.1percent lower through the year. Conditions in the West Australian grain

belt look favourable for 2005, but the planting of wheat and barley crops in

the eastern states will depend critically on rainfall in the next few weeks.

Agricultural incomes have never fully recovered from the 2002-03 drought. The

impact of drought now evident in four quarterly falls in agricultural production

is now affecting the measure of overall economic growth.

Nominal GDP continues to be boosted by the impact of the terms of trade, which

increased by a further 1.1percent to be 7.6percent higher through the year.

Growth in consumer prices remains subdued, with the household consumption chain

price index increasing by 0.8percent in the March quarter and 1.9percent

through the year.

Notwithstanding the impact of drought on rural Australia, the non-farm sector

of the Australian economy is in strong shape. The unemployment rate has fallen

to a 30-year low of 5.1percent, interest rates and inflation are low by historical

standards and the Government’s budget position is very strong. The Government’s

prudent budget management and focus on sensible economic reform will help to

ensure that these positive economic outcomes continue.

1June2005

CANBERRA

Contact: David Alexander

02 6277 7340