Today's National Accounts show that despite global financial turmoil and the slowing world economy, the Australian economy continues to grow solidly.
GDP increased by 0.3 per cent in the June quarter to be 2.7 per cent higher through the year. The non-farm economy grew by 0.5 per cent in the quarter, while the farm sector has been affected by adverse weather conditions, and detracted from overall growth.
Today's National Accounts are a solid result considering the global difficulties that are slowing the world economy. Developed countries across the world are struggling with the impact of the global credit crisis and declining confidence, with five of the major G7 economies recording flat or negative growth in the June quarter.
The National Accounts show that Australian households have been buffeted by high interest rates, and rising global oil and food prices. Household consumption fell by 0.1 per cent in the June quarter, but remains 2.9 per cent higher through the year. High global oil prices explain a large part of the fall in household consumption in the quarter, with operation of motor vehicles falling by 2 per cent. Consumption has been particularly hard hit in New South Wales and Victoria. The Rudd Government's tax cuts, which came into effect from July, will provide some support to working families, along with yesterday's cut in official interest rates.
Business investment continues to support growth, rising by a strong 4.0 per cent in the quarter to be 9.9 per cent higher over the year. Business investment as a share of the nominal economy is at its highest level since the early 1970s, and expectations for business investment remain strong, with businesses expecting to invest a record $100 billion in 2008-09.
Export growth in the June quarter was also strong, rising by 2.7 per cent in the June quarter to be 6.1 per cent higher through the year, reflecting broad-based increases across all export categories. This growth, together with the large increase in iron ore and coal prices meant that the June quarter recorded the first trade surplus since the March quarter 2002.
Today's data shows the huge boost to national income being received from the terms of trade boom. The terms of trade rose by 13.1 per cent in the quarter, the largest quarterly increase in over 35 years, on the back of a surge in coal and iron ore prices.
The rise in the terms of trade has led to very strong growth in national income. Real gross domestic income, which accounts for the higher terms of trade, grew by 3.3 per cent in the June quarter to be 6.3 per cent higher over the year. This boost to income has flowed through to company profits, which rose by 12.0 per cent in the quarter, but will take some time to flow through to the rest of the economy. Wages grew by 1.8 per cent in the quarter and are 4 per cent higher through the year.
Today's National Accounts show that while Australia is not immune from global difficulties which are slowing the world economy, we are better placed than most other countries to withstand the fallout.
The Rudd Government is focused on delivering responsible economic management, so we can have strong growth with low inflation well into the future.
Our strategy, which combines a strong surplus, relief for families, and long-term investment in nation-building and growth, is the best way to respond to the global challenges Australia faces.
3 September 2008