NO.112

The Australian economy continued to

post solid gains in the September quarter. Today’s National Accounts show that, in

seasonally adjusted terms, GDP grew by 0.6 per cent in the quarter and by a

strong 4.2 per cent through the year. In trend terms, which removes some of the

short term volatility in the data, GDP grew by 0.9 per cent in the quarter and

has been relatively steady at around 1 per cent growth per quarter for an

extended period.

Australia is in the longest run of continuous positive growth in the history of the

Quarterly National Accounts (compiled since 1959).

The September quarter National Accounts are consistent with the Budget and Mid Year

Economic and Fiscal Outlook (MYEFO) forecasts for 2000-01 as a whole that pointed to a

rebalancing of the components of growth. Net exports are expected to grow more strongly

than in recent years, boosted by the lower exchange rate, robust world growth and the

Olympics. At the same time, a moderation in domestic demand growth is expected, following

several years of very strong growth.

Net exports contributed 0.7 percentage points to GDP growth in the quarter,

reflecting strong growth in export volumes and only a slight rise in import volumes. The

Olympic Games contributed to this result, largely through tourism-related services exports

and the sale of overseas broadcasting rights. More recent data point to a continuing very

strong trade performance into the December quarter.

Household consumption grew by a moderate 0.7 per cent in the quarter, down

from the recent average of around 1 per cent growth per quarter. Retail sales in

the National Accounts declined in the quarter by 2.8 per cent, following an

increase of 1.5 per cent in the June quarter ahead of The New Tax System.

However, household spending on services grew strongly, in part reflecting Olympic Games

ticket sales. Purchases of motor vehicles also increased sharply in the quarter as

consumers responded to lower taxes on motor vehicles.

Investment in new plant and machinery increased by a strong 4.8 per cent in

the quarter, supported by lower business costs associated with the introduction of The

New Tax System. New investment in buildings and structures fell in the quarter,

although as a share of GDP it remains around its long term average, and higher than the

1990s average. The outlook for business investment is positive, reflecting strong

profitability, sound balance sheets, the strong world economy and a boost to

Australia’s competitiveness from the lower exchange rate.

Dwelling investment fell by 21.5 per cent in the quarter. This decline largely

reflects the unwinding of the very strong bring forward of building activity ahead of The

New Tax System, which saw dwelling investment increase by almost 16 per cent

over the March and June quarters. The decline in dwelling investment was widely

expected, with the MYEFO forecast being for an 8 per cent year-average decline

in dwelling investment in 2000-01.

The household consumption chain price index, which is a broader measure of consumer

prices than the CPI, increased by 3.2 per cent in the quarter, to be

4.5 per cent higher through the year to the September quarter. (The

corresponding CPI figures were 3.7 per cent in the quarter and 6.1 per cent through the

year.) The introduction of The New Tax System is likely to have accounted for a

large portion of the quarterly increase in this deflator, in a similar way to the one-off

impact of The New Tax System on the September quarter CPI outcome. The relatively

moderate overall increase in the quarter points to the impact of The New Tax System

on consumer prices being less than expected earlier.

Average earnings increased by 1 per cent in the quarter, and by a moderate

3.4 per cent through the year to the September quarter. This outcome includes 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 increased by

4.4 per cent in the quarter, and by more than 17 per cent through the

year to the September quarter. Labour income continued to grow solidly in the quarter,

rising 2.5 per cent, reflecting strong employment growth and a moderate increase

in average earnings.

Production was particularly strong in the cultural and recreational services sector,

which recorded growth of 23 per cent in the quarter largely as a result of the

Olympic Games. Production also grew solidly in the agriculture and mining industries.

The prospects for the economy remain very favourable with business investment picking

up, net exports contributing strongly to growth, solid employment growth expected for the

year as a whole and ongoing inflationary pressures remaining in check.

CANBERRA

13 December 2000