Today’s National Accounts for the June quarter 2018 highlight the strength and resilience of the Australian economy which has just completed its 27th year of consecutive economic growth.
According to the Australian Bureau of Statistics, real GDP grew by 0.9 per cent in the June quarter 2018, which was above median market expectations. This follows an upwardly revised increase of 1.1 per cent in the March quarter. The economy grew 3.4 per cent in through-the-year terms, which is the fastest rate of growth since the September quarter 2012 during the height of the mining investment boom.
In year-average terms, which is what we publish in the Budget, our economy expanded by 2.9 per cent in the 2017-18 financial year. This is above our forecast of 2¾ per cent published in the 2018-19 Budget.
Nominal GDP grew by 4.7 per cent on a year-average basis, also above our Budget forecast of 4¼ per cent, as real GDP was stronger than forecast and prices for key commodities have remained higher than we had prudently assumed.
The strength in the June quarter was broadly based. Household consumption, dwelling investment, new public final demand and net exports all contributed to growth in the quarter. Business investment and changes in inventories made no contribution to growth.
Households continued to demonstrate their confidence in the economy, with household spending up 0.7 per cent in the quarter to be 3.0 per cent higher through the year. The outcome is above the ten‑year average through-the-year growth rate of 2.7 per cent and shows that households are benefiting from recent strong employment growth. It is important to note that spending in 12 of the 17 consumption categories grew in the quarter, including in food and recreation and culture. This shows that households are benefiting from recent strong jobs growth with more than 330,000 jobs created in the last financial year, which is the largest jobs growth in a financial year since 2004-05.
The June quarter result finishes off a strong 2017-18 financial year for household consumption and the Government’s targeted tax relief through our Personal Income Tax Plan for lower, fairer and simpler taxes will continue to support household incomes.
Dwelling investment reached a record high level, expanding by 1.7 per cent in the quarter to be 3.8 per cent higher through the year. This outcome followed strong growth of 3.6 per cent in the March quarter 2018 and was driven by robust growth in investment in new and used dwellings.
New private business investment fell by 0.2 per cent in the quarter to be 4.1 per cent higher through the year. New building construction was up 1.0 per cent in the quarter, while new machinery and equipment investment (down by 1.7 per cent) and new engineering construction (down 0.8 per cent) both fell.
By industry, mining investment rose by 5.1 per cent in the quarter, which was the first rise since the March quarter 2017. This result reflects investment in machinery and equipment by mining firms and an increase in mineral and petroleum exploration expenditure. While new non-mining investment fell by 1.7 per cent in the quarter, it remained elevated and grew by 8.8 per cent through the year. New non-mining investment refers to new investment only and does not include asset transfers. The fall in new non-mining investment in the quarter reflects lower machinery and equipment investment, following strong growth in the previous quarter.
Through-the-year strength in new non-mining business investment has occurred alongside elevated business conditions and confidence, which are above historical averages. There is also evidence to suggest that private business investment is benefiting from increasing infrastructure investment by the public sector. The unwinding of the mining investment boom and its associated drag on economic growth has almost worked its way out of Australia’s economic landscape.
New public final demand, across all levels of government, rose by 0.6 per cent in the quarter to be 4.7 per cent higher through the year. New public investment fell 0.9 per cent in the quarter but was up 3.3 per cent through the year, with infrastructure investment by the States and Territories, particularly on transport projects, continuing to remain elevated. New investment is defined as not including asset transfers.
Public consumption grew by 1.0 per cent in the quarter to be 5.1 per cent higher through the year and is expected to continue to grow strongly as a result of the transition to the National Disability Insurance Scheme. The benefit of a strong economy is that allows the government to guarantee the essential services that Australians rely on.
Net exports contributed 0.1 percentage points to GDP growth in the quarter. Exports contributed 0.2 percentage points, partly offset by a detraction of 0.1 percentage points from imports.
Exports rose by 1.1 per cent in the quarter, with broad-based growth across components including in agriculture (led by meat, grains and cotton) and mining exports. Exports continue to be supported by the expansion of Australia’s mining capacity, particularly liquefied natural gas, as key projects ramp-up to full production. Services exports are also contributing to growth as strong demand from Asia for tourism and education services continues.
The terms of trade fell by 1.3 per cent in the June quarter but were still 2.0 per cent higher through the year.
Compensation of employees, which is wages and salaries across the economy, rose by 0.7 per cent in the quarter to be 4.8 per cent higher through the year. Growth was mostly driven by a large increase in employment. Company profits increased by 0.9 per cent in the quarter to be 8.8 per cent higher through the year, which includes strong results from mining companies.
Strong employment outcomes have been accompanied by an elevated rate of labour force participation, particularly for women, which has recently been near its record high. Importantly in 2017-18 over 95,000 young Australians found employment, which is the best financial year result since 1988-89, almost 30 years ago. The unemployment rate has declined, reaching 5.3 per cent in July, the lowest level since November 2012.
Improving the incomes of wages and salary earners remains our most important challenge. Wages can be expected to rise if economic growth remains strong as excess capacity in the labour market is absorbed. This is a view shared by Governor Lowe and reflected in yesterday’s Reserve Bank statement.