NO.013

NATIONAL ACCOUNTS: DECEMBER QUARTER 2003

Today’s National Accounts — with gross domestic product(GDP) increasing by 1.4percent— show the strongest quarterly growth in fouryears. A major contributor to growth in the December quarter was the welcome recovery in farm production.

GDP growth in the year to the December quarter was a very solid 4.0percent, primarily reflecting continued growth in private domestic demand. Despite this healthy growth in economic activity, the National Accounts confirm that price and wage pressures remain subdued.

Farm production increased by 13.3percent in the December quarter, building on the 14.0percent increase that was recorded in the September quarter. This rebound in farm production contributed 0.4 of a percentagepoint to overall economic growth in the December quarter. Increased farm production was also reflected in rural exports, which rose by 8.2percent in the December quarter. Further increases in rural exports are to be expected in coming quarters, as last year’s winter crops are exported.

While the continued recovery in farm production over the last two quarters is a welcome development, there are still significant parts of rural Australia that are yet to recover fully. In particular, it will take livestock producers time to fully re-stock and some irrigators will need to see further substantial rainfall before water supplies are replenished to their pre-drought levels.

Household consumption increased by 1.6percent in the December quarter and by 5.5percent over the year. Consumption growth has been supported by high levels of consumer confidence, increasing wealth and solid growth in employment and real wages. The Rugby World Cup contributed to consumption growth in the December quarter, supporting increased spending in the recreation& culture and hotels, cafes& restaurants sectors.

Private business investment grew by 3.5percent in the December quarter and by 10.0percent over the year. New engineering construction has been a major contributor to growth, increasing by 13.0percent in the December quarter and by 22.5percent over the year. Strong consumer demand, high levels of capacity utilisation and healthy corporate profitability are providing a supportive environment for business investment in Australia. The National Accounts measure of private non-financial corporate profits grew by 3.1percent in the December quarter, to be 12.1percent higher over the year.

The profit share of the economy at 25.6 per cent of total factor income is the highest ever recorded.

Dwelling investment grew by 3.3percent in the December quarter, maintaining activity at high levels. However, forward indicators of housing point to a modest slowing in activity over coming quarters.

Strong domestic spending in the face of recovering international demand saw the external sector subtract 0.5 of a percentagepoint from economic growth in the December quarter. Exports grew by 3.3percent, with rapid growth in rural exports accompanied by a 9.1percent rebound in services exports. Robust domestic demand saw imports rise by 4.4percent in the quarter.

Consistent with other measures of prices, the National Accounts confirm that Australia’s strong growth continues to be accompanied by low inflation. The household consumption chain price index rose by 0.4percent in the December quarter and by 1.5percent over the year. Non-farm average earnings increased by 0.9percent in the December quarter and by 3.4percent over the year, consistent with growth in the Wage Cost Index.

The Australian economy continues to perform strongly, with a healthy combination of strong growth and low inflation. While the welcome and much-needed recovery in the farm sector has been a major contributor to growth, other areas of the domestic economy have also continued to perform strongly. The external sector remains under pressure from a higher exchange rate. Nevertheless, recent signs of positive economic outcomes in the United States, Japan, and parts of Asia are a welcome development, and will contribute to a recovery in Australia’s exports in the period ahead.

CANBERRA

3 March 2004