NO.009

NATIONAL ACCOUNTS – DECEMBER QUARTER 2005

National Accounts data released this morning by the Australian Bureau of Statistics

(ABS) show solid economic growth in the December quarter. GDP increased by 0.5percent

in the quarter to be 2.7percent higher than a year ago. Growth in the quarter

was led by strong business investment. Household consumption continues at moderate

levels, while dwelling investment and net exports subtracted from growth.

National income growth remains robust, with real gross domestic income increasing

by 0.9percent in the December quarter to be 5.2percent higher through the

year. Much of the boost to national income is due to the terms of trade, which

were 13.4percent higher through the year, and are at their highest level since

the March quarter1974. High prices for exports of mineral commodities and moderate

growth in the prices of many imported consumption and capital goods are increasing

the relative purchasing power of Australian households and businesses.

Business investment grew strongly in the December quarter. New private engineering

construction investment grew by 7.1percent in the quarter to be 29.8percent

higher through the year, while new machinery and equipment investment grew by

6.2percent to be 15.8percent higher through the year. Growth in business

investment was broadly based across industries. Mining capital expenditure was

particularly strong, having grown by 68.4percent in the year to December2005.

Corporate gross operating surplus, the national accounts measure of profits,

increased by 1.4percent in the quarter to be 12.1percent higher than a year

ago. The profit share was 26.9percent, and remains near record high levels.

The outlook for business investment is supported by strong corporate profitability

and balance sheets and high levels of capacity utilisation.

Household consumption growth remains moderate. Household consumption grew by

0.7percent in the December quarter 2005 to be 2.9percent higher through

the year. Spending by households on dwelling investment has also moderated in

recent quarters. Dwelling investment fell by 2.7percent in the quarter to

be 2.1percent lower through the year.

Exports grew by 1.1percent in the December quarter, with exports of mineral

ores, other metals, and mineral fuels the main contributors to growth. Export

growth is expected to accelerate over the next year or so reflecting substantial

investment in the mining sector. Imports grew by 3.0percent, with capital

and intermediate goods the main contributors to growth. Excluding civil aircraft,

imports grew by 1.2percent in the December quarter.

Conditions in the farm sector have improved, reflecting the effects of good

seasonal rains through the second half of 2005. Farm GDP rose by 8.2percent

in the quarter, but was 4.5percent lower through the year. The outlook for

farm production and rural exports is encouraging, with ABARE predicting the

2005-06 winter grain crop to be the second-largest on record.

Inflation was moderate. The household consumption chain price index increased

by 0.4percent in the December quarter to be 2.3percent higher through the

year.

Very strong business investment is laying a foundation for future economic

growth in Australia. The mining sector has invested around $31.6billion in

additional equipment, buildings and structures over the past threeyears, and

other sectors have also invested strongly. With unemployment at low levels,

business investment and measures to increase productivity and labour force participation

will become increasingly important as drivers of growth. The Government remains

committed to policies that improve the flexibility of the economy and reinforce

the sustainability of the current record economic expansion.

1March2006

CANBERRA

Contact: David Alexander

(02) 6277 7340