Today’s December Quarter National Accounts show once again that Australia continues to successfully manage our transition from the largest resources investment boom in our history to broader-based growth and in turn secure our economic future.
In the face of global uncertainty and strong headwinds our economy continues to transition and grow.
Real GDP grew by 0.6 per cent in the December quarter and by a strong 3.0 per cent compared to a year ago, up from a revised 2.7 per cent through the year to September.
This is the strongest pace of through-the-year growth since the March quarter of 2014, and is consistent with the strength of job creation in the second half of last year.
We are growing faster than every economy in the G7, and growing well above the OECD average. We are growing faster than the United States and the United Kingdom, more than twice the pace of Canada – a comparable resource-rich advanced economy – and we’re matching growth rates in economies like South Korea.
The key drivers of economic growth in the December quarter were household consumption, new housing construction, services exports and public investment, more than offsetting continued and expected declines in resources investment.
The changing composition of our drivers of growth demonstrates the transition to broader-based growth underway in our economy and the increases in consumer confidence and business conditions.
Strong employment growth continues to support solid growth in household consumption, which rose 0.8 per cent in the December quarter.
Investment in new and used dwellings increased 3.6 per cent in the December quarter, particular in apartments where investors are more prevalent, and by 12.1 per cent over the past year, responding to record low interest rates.
The combined impact of recent changes by APRA that have led to a tightening of investor lending criteria, strong growth in housing supply and a considerable pipeline of work underway, has helped to moderate growth in dwelling prices over recent months, which is good news for first home buyers.
While having no net impact on the December quarter growth figures, net exports have contributed 1 percentage point to growth through the year to December, as exports growth has outpaced imports growth. This follows the strong contribution of net exports to economic growth in the September quarter.
Exports continued to grow in the December quarter, rising 0.6 per cent. Looking through quarterly volatility, the growth in exports is broadly based.
Rural commodity exports have risen by about 13 per cent over the past year and mining exports have risen by about 5 per cent compared to a year ago, as resource investment projects reach completion.
Services exports have risen by around 8 per cent over the past year, with sectors like tourism and education being particularly strong performers.
Business investment continued to detract from growth in the December quarter, falling by 2.7 per cent to be 12 per cent lower than a year ago. This is driven by the expected decline as Australia transitions from the investment phase of the mining boom.
The terms of trade result was once again negative, impacted by further falls in commodity prices during the quarter – reducing what we earn from our exports. The terms of trade is now closing in on the 20 year average, after falling more than a third since the peak in September quarter of 2011.
Wage income shows moderate growth, which has supported the strong employment growth outcomes we saw over the year, with more than 300,000 jobs added.
While profits growth improved in the December quarter after a period of weakness in the face of strong headwinds and lower export prices, it still remains – like wages – well below longer term trends.
Government revenues will also continue to be impacted by more modest growth in nominal GDP, rising by a subdued 0.4 per cent in the December quarter, weighed down by both commodity price falls and continued moderate inflation.
Lower levels of nominal GDP growth which means lower growth in what Australians are earning, which means lower revenues for governments.
In MYEFO there was a substantial write down of revenues from the last budget as a result of revised forecasts for nominal GDP growth.
This will remain a key conditioning factor as we frame the 2016‑17 Budget and is one of the major challenges for achieving our medium term fiscal consolidation strategy. As I said the other week, it will take budgets and budgets and budgets.
Year average nominal GDP growth last year was just 1.9 per cent. During previous periods of fiscal consolidation when budgets were returned to surplus, nominal GDP growth averaged 5.7 per cent in the 1990s and 11.4 per cent in the 1980s.
While these periods also involved significant expenditure restraint, which continues to be necessary, the tail winds of stronger nominal GDP growth during these periods boosting revenues made a significant contribution to the fiscal consolidation that was achieved.
With solid consumption demand and robust employment growth, the next phase of Australia’s transition will be for businesses in the non-resources sectors of the economy to increase their investment. Conditions are in place for this to occur. Interest rates are low. The Australian dollar has depreciated over the past few years, assisting our export and import-competing industries. And business conditions in the non-mining sector are above average.
As a government, it requires us to focus keenly on the policies that will boost investor confidence, drive productivity gains in our economy, particularly through innovation, open up new markets through our successful and ambitious trade agenda and continue on our path of fiscal consolidation.
Tax and spend is not a plan that will support the continued successful transition of our economy. Tax and spend is not a plan to boost investor confidence. Tax and spend is not a plan for jobs and growth – but it’s the plan being followed by our opponents
Our transitioning economy is aligned with the transitioning economies of our trading partners, especially China. As they are moving from a production to a consumption based economy, we are moving to a diversified, more sophisticated economy with innovation and services driving sustainable and growing trade.
Today’s data shows further strong signs of the successful transition that is underway, creating a new and emerging momentum in our economy.