NO.011

Today’s National Accounts show that, in seasonally adjusted terms, GDP declined by

0.6 per cent in the December quarter. Growth through the year was

2.1 per cent. In trend terms – which removes some of the short-term

volatility in the National Accounts data – GDP grew by 0.1 per cent in the

quarter and 2.5 per cent through the year. The National Accounts also confirm that

inflationary pressure remains very low.

Household consumption grew by 0.5 per cent in the December quarter, in line with

the outcome in the September quarter. Growth in household consumption has slowed relative

to growth rates averaging in excess of 1 per cent per quarter during 1998 and 1999. Retail

trade increased in the December quarter by 1.2 per cent, following a fall of 3.0

per cent in the September quarter as the bring forward of spending ahead of The

New Tax System was unwound. Purchases of new motor vehicles moderated from the

September quarter peak in sales, but remained at high levels in the December quarter, as

consumers continued to take advantage of significantly lower car prices flowing from the

new indirect tax arrangements for cars.

Dwelling investment fell by 15.4 per cent in the December quarter. This decline

reflects the continued unwinding of the very strong bring forward of building activity

ahead of The New Tax System, which saw dwelling investment increase sharply over

the March and June quarters. Private dwelling investment detracted 0.7 percentage

points from the December quarter GDP.

However forward indicators for housing investment have generally strengthened over

recent months, consistent with improved activity levels in this sector from around mid

2001. This will be assisted by recent cuts in interest rates. Most of the drag on economic

growth from this sector is now likely to be behind us.

Investment in new plant and machinery fell by 5.5 per cent in the December quarter,

after very strong growth in the previous quarter. This component of activity is

traditionally very volatile, underscoring the need to focus on underlying trends in the

data. Investment in new machinery and equipment grew by a strong 11.1 per cent through the

year to the December quarter. New investment in buildings and structures also

declined in the December quarter, and has fallen substantially over the past year,

following its peak in 1998-99 associated with the Sydney Olympics. The medium-term outlook

for business investment remains positive, reflecting historically high levels of

profitability, particularly in the mining sector, the removal of sales tax on plant and

equipment investment, and the boost to Australia’s competitiveness from the lower

exchange rate.

With overall domestic spending slowing, net exports made a substantial positive

contribution to growth in both the September and December quarters. Net exports

contributed 1 percentage point to GDP growth through the year to the December

quarter. The strong net export performance has also contributed to a sharp decline in

Australia’s current account deficit, to little more than 3 per cent of GDP over

recent quarters – below the average of the 1990s and well below earlier peaks of

above 6 per cent of GDP.

The National Accounts confirmed that inflationary pressures remain very low. Following

the lower than expected outcome in the September quarter, the household consumption chain

price index, which is a broader measure of consumer prices than the CPI, increased by a

very modest 0.3 per cent in the December quarter. This is in line with the

increase in the CPI for the December quarter.

Non-farm average earnings increased by 0.5 per cent in the quarter, and by a

moderate 3.5 per cent through the year to the December quarter. Recent outcomes

include a significant contribution from the increase in the superannuation guarantee

charge on 1 July 2000. Increases in average earnings remain in line with most other wage

measures, which point to continued moderate wage growth, consistent with ongoing inflation

pressures remaining well in check.

Private corporate profits in the non-financial sector declined by around 9

per cent in the quarter, although they remained around historical highs as a share of

GDP, and were up around 7 per cent through the year to the December quarter. The ABS

company profits survey indicated that profits were up sharply in the mining and wholesale

and retail sectors in the December quarter. Mining profits were up 45 per cent through the

year to the December quarter.

Production growth was particularly strong in the Mining and Property and Business

Services industries. Agricultural production declined, largely due to adverse seasonal

conditions in some areas. Cultural and Recreational Services were also down from the very

high levels reached in the September quarter in response to the Olympics.

Favourable signs for economic growth are that activity in residential construction

should pick up around mid 2001, with households benefiting from substantial tax cuts and

the recent fall in interest rates, inflation remaining very low and net exports are

contributing strongly to growth.

CANBERRA

7 March 2001