NO.011

Todays National Accounts confirm exceptionally strong growth in the Australian economy.

GDP rose by 1.1 per cent in the December quarter and by 4.7 per cent through the year to the December quarter.

In a weak world economy, Australia recorded its fifth consecutive quarter of growth of one per cent or more. Australias economic growth leads the world. It is greater than the G7 (1.5), OECD (2.6), and even the strong US economy of 4.3 per cent. Australias growth is exceptional given that our major trading partners in the Asian region are in recession.

Consumer spending underpinned economic growth in the quarter, while government expenditure also supported growth. However, in the face of a very difficult world trading environment, net exports detracted 0.3 percentage points from growth in the December quarter. While our exporters continue to show considerable flexibility in the face of the sharp downturn in Asia, aided by low interest rates and a competitive exchange rate, the flat result for growth in export volumes in the December quarter is clear evidence of the difficult world trading conditions.

Growth was spread across most industries, with particularly strong growth recorded in the communication services; agriculture, forestry and fishing; property and business services; and wholesale trade industries. However, the difficult world trading conditions were evident in the fall in mining output in the December quarter, although the fall is largely due to lower oil and gas production due to the Victorian gas disruption. The manufacturing sector also grew despite weak export markets and strong import competition.

A number of other indicators provide evidence of continued strength in domestic economic activity into 1999. Retail trade data point to strong sales over the Christmas/New Year period, while building approvals data point to continuing strength in the dwelling sector. Measures of business confidence and consumer confidence have risen sharply in recent months.

The Accounts provide further evidence of subdued price pressures, with the household consumption deflator rising by only 0.2 per cent in the December quarter and by 1.6 per cent through the year, in line with the movements in the Consumer Price Index.

Todays National Accounts once again demonstrate the tangible benefits for an economy of sound macroeconomic policies combined with well functioning financial and product markets: sustained strong economic growth; subdued price pressures; moderate wages growth; ongoing productivity growth; and healthy corporate profits. These fundamentals supported the strong domestic demand growth in the December quarter and should underpin solid employment growth in 1998-99.

The role these sound fundamentals have played in helping to shield the Australian economy from the international downturn underlines the importance of both maintaining a sound macroeconomic policy framework and continuing to pursue reforms that increase the flexibility of business to meet such challenges and that make Australia a better business environment. The Government will press ahead with introducing a new taxation system for the next century to lay the foundation now for sustained growth in the future, just as the growth now has been built on the Governments sound foundations laid down in its first term.