Today’s National Accounts showed that real GDP rose by 0.3 per cent in the March quarter, to be 1.7 per cent higher through the year.
The results today demonstrate the continued resilience of the Australian economy. Seventeen of the 20 industry sectors in the economy grew in the March quarter.
The results also demonstrate the need to continue making the right choices to support more and better paid jobs through economic policies that encourage investment, increase earnings and responsibly manage the nation’s finances, as set out in this year’s Budget.
The Government’s economic plan acknowledges the challenges that are evident, and were anticipated, in these numbers and we remain determined to get on with the job of implementing our plan to secure the better days ahead.
I note yesterday the Reserve Bank Governor restated his expectation for growth to increase above 3 per cent in the next couple of years.
I also note that the modest economic growth result for the March quarter was anticipated in the Budget, with Treasury revising down the 2016-17 forecast to 1¾ per cent.
Turning to the numbers more specifically, contributions to growth from household and general government consumption, and increases in inventories and non-dwelling construction offset declines in net exports and dwelling investment.
Household consumption expenditure increased by 0.5 per cent in the quarter, to be 2.3 per cent higher than a year ago. Growth in household spending continues to support the economy, while household savings remain positive.
Consumption growth was driven by household essentials. This emphasises our understanding that many households are doing it tough and why it was important that our Budget guaranteed essential services like Medicare and schools funding, while working to put downward pressure on rents, childcare and electricity prices.
New private business investment expanded by 0.7 per cent in the quarter. Strength in new business investment was led by engineering construction, which expanded for the first quarter since September 2013 (up 4.3 per cent over the quarter).
Investment in new buildings also increased. This is the second quarterly increase in new business investment following 12 consecutive quarters of decline.
Inventories contributed 0.4 percentage points to GDP growth in the quarter driven by a build-up in mining inventories, as well as increases in retail trade and farm inventories.
This can be partially attributable to the impact of wet weather, a bumper grain crop in the March quarter, and mining companies replenishing their stockpiles after taking advantage of a temporary spike in commodity prices.
Dwelling investment fell by 4.4 per cent in the quarter to be 2.5 per cent lower through the year. However, the level of investment remains high by historical standards and there remains a strong pipeline of dwelling construction.
Wet weather during the quarter would not have assisted in the states where this occurred. Building more houses remains an important national task to improve housing affordability, and the Budget contained a comprehensive programme to support this objective.
Adverse weather conditions during the March quarter affected exports, particularly iron ore exports in the West. Exports declined by 1.6 per cent in the quarter, detracting 0.4 percentage points from GDP growth.
Weather impacts are likely to affect the next quarter’s results also, particularly for coal in the aftermath of Tropical Cyclone Debbie.
However, the decline in exports this quarter also follows on from a strong result in the December quarter, which was revised up to a 3.7 per cent increase.
Exports of rural goods were up by 8.0 per cent and services exports rose by 2.5 per cent in the quarter. Combined with a moderate rise in imports, net exports detracted 0.7 percentage points from GDP growth in the quarter.
Demand rose or was flat in all States and Territories except Western Australia, with growth particularly strong in Victoria and South Australia which each grew at 1.4 per cent for the quarter.
The terms of trade rose strongly by 6.6 per cent in the quarter, to be up 24.8 per cent through the year on the back of the strong commodity prices.
Company profits were strong again during the quarter, but the lift was largely driven by the mining sector and reflected another increase in our terms of trade. Since then key commodity prices have fallen, as foreshadowed in Treasury’s budget forecasts.
Compensation of employees was positive in the quarter, but is still very modest, especially in the private sector. It remains our most important challenge. At the same time, almost 200,000 jobs have been created over the past year, with almost 70,000 coming in the March quarter alone.
The challenges facing the Australian economy remain, but so do the opportunities that are ahead.
We must continue to focus on the policies that increase investment, wages and jobs.
We made the right choice in the Budget to invest in productivity boosting public infrastructure and deliver further support to small businesses to invest in their future.
We have made the right choice to make our corporate tax system more competitive.
We have made the right choices to invest in advanced manufacturing through our defence industry plan, to expand our export frontiers through our trade agreements and invest in our National Innovation and Science Agenda, in areas like financial technology or FinTech, that I was only highlighting yesterday.
We have made the right choice to reduce cost pressures on households and guarantee essential services to support confidence.
We have made the right choice to return the Budget to balance at a responsible and measured pace, with well-timed measures that do not drag on economic growth.
We have the national economic plan to address the challenges we face and secure the better days ahead.
What we need now is the Parliament to meet us in the middle and work with the Government to provide the policy certainty and stability that will encourage and support investment - whether on energy policy, tax policy, housing policy or delivering on essential services such as needs based schools funding or the National Disability Insurance Scheme.