The Hon Josh Frydenberg MP
4 March 2020
NATIONAL ACCOUNTS – DECEMBER QUARTER 2019
Today’s National Accounts confirm that the Australian economy continues to grow. We are in our 29th consecutive year of economic growth – a record unmatched by any other developed nation.
The Australian economy grew by 0.5 per cent in the December quarter to be 2.2 per cent higher through the year. This is a step up from 1.8 per cent growth through the year to the September quarter.
This puts to rest the claim by some that the Australian economy was softening at the end of last year.
The Australian economy remains remarkably resilient in the face of significant economic shocks, which are outside the Government’s control.
The bushfires have not had a significant effect on the National Accounts in the December quarter, but we know that the fires have had a devastating impact on human life and communities. Most of the economic effect of the bushfires is expected to be felt in the March quarter.
The impact of the Coronavirus is serious and ongoing and is affecting economies the world over.
The Coronavirus is impacting on the tourism, education and export sectors, but also disrupting end-to-end supply chains.
The measures the Government has already put in place are designed to keep Australians safe and that remains our priority.
As the Prime Minister has foreshadowed, the Government is working on a targeted, measured and scalable fiscal response that is designed to keep businesses in business and Australians in jobs.
Our responsible fiscal management has given the Government the flexibility to respond to these economic shocks. We have already announced the $2 billion National Bushfire Recovery Fund, $1.3 billion in additional assistance in relation to the drought and $4.2 billion in infrastructure spending brought forward.
This comes on top of providing the biggest tax cuts in 20 years to hard working Australians, our $100 billion infrastructure plan and record spending on health, education and disability services. Having a strong budget position has allowed us to provide this support without raising taxes or cutting essential services.
Just this week, the OECD singled out Australia and Germany as two countries that are in a position to undertake additional fiscal measures in response to the Coronavirus without endangering debt sustainability.
The Australian labour market continues to perform well, with more than 1.5 million jobs created since we came to Government and the participation rate sitting around record highs. Annual jobs growth is 1.9 per cent – almost double the OECD average and almost three times what it was when we came to Government.
The housing market continues to stabilise with housing prices up 7.3 per cent through the year to February 2020 and the value of new housing finance commitments up 14.0 per cent through the year to December 2019.
The IMF continues to forecast that Australia will grow faster than the US, UK, Japan, France and Germany in 2020 and 2021.
We have maintained our AAA credit rating from all three major rating agencies – one of only 10 countries to do so.
In today’s National Accounts numbers, growth over the quarter was driven by household consumption, public final demand and net exports, with inventories also contributing positively to growth.
Household consumption increased by 0.4 per cent in the December quarter. Expenditure increased in 13 out of 17 consumption categories with stronger growth recorded in discretionary goods and services, including furnishings and household equipment. Clothing and footwear also increased strongly.
Growth in household consumption continues to be supported by solid growth in household disposable income, which increased by 2.6 per cent over the second half of 2019, the strongest six monthly increase in five and a half years. This follows the Government’s low and middle income tax offset which is putting more money into the pockets of hardworking Australians benefiting over 8 million people. Continued growth in labour income, low interest rates and an increase in housing prices are also supporting consumption.
Government consumption increased by 0.7 per cent in the December quarter 2019, and 5.3 per cent through the year, supported by the continued rollout of the National Disability Insurance Scheme, an increase in Pharmaceutical Benefits Scheme listings, as well as ongoing Aged Care initiatives such as home care packages. These initiatives are supporting Australians and ensuring that they have access to the essential services that they deserve.
Government investment is 2.4 per cent higher through the year. As has been the case for a number of years, government investment has been an important driver of growth and this is expected to continue. Government investment has been and will continue to be driven by strong growth in transport infrastructure investment which is supported by the Commonwealth’s $100 billion 10‑year pipeline. This will add the critical infrastructure which we need and also generate jobs and support private investment.
Net exports contributed 0.1 percentage points to GDP growth in the December quarter. A lower Australian dollar and strong international demand for Australian exports is supporting growth. Exports are also being supported by Free Trade Agreements which now cover around 70 per cent of our two‑way trading relationships compared to just 26 per cent when we came to Government. In the December quarter, the current account surplus was $1.0 billion and is the third consecutive current account surplus – the longest consecutive period of current account surpluses since the 1970s.
While new business investment fell by 0.8 per cent over the quarter there are positive signs emerging in the mining sector with mining investment increasing by 5.0 per cent. Investment intentions from the capital expenditure survey indicate that mining investment will continue to grow solidly in 2019‑20 and 2020-21. Non-mining investment fell over the quarter, but is expected to be supported going forward by the elevated pipeline of non-residential building work.
Dwelling investment fell by 3.4 per cent in the December quarter. However, the established housing market has stabilised in recent months, with housing prices and turnover having picked up following significant declines in recent years. National auction clearance rates are back above their 10-year average and, in trend terms, the total value of new housing finance commitments has been rising since May 2019 after declining for more than two years.
Reflecting the pick-up in housing prices and turnover in the established housing market, ownership transfer costs partly offset the fall in dwelling and non-dwelling investment, contributing 0.2 percentage points to growth.
Turning to the income side, growth in compensation of employees (COE), which measures the national wage and salary bill, was up 1.0 per cent in the December quarter to be 5.1 per cent higher through the year. Through-the-year growth has been above 4.0 per cent for over two years – the strongest run of growth since 2012 and above the 10-year average of 4.6 per cent.
Average earnings grew by 0.5 per cent in the quarter to be 3.0 per cent higher through the year. This broader measure of average wage growth has been running at a faster rate than narrower measures of wage growth such as the Wage Price Index. Real wages, as measured by average earnings, are above their 20-year average in through-the-year terms.
Company profits decreased by 1.7 per cent in the quarter, reflecting the impact of the falling terms of trade on mining profits, but remain 5.8 per cent higher compared to a year ago. Company profits excluding mining grew by 3.3 per cent through the year.
The drought continues to have a devastating impact on regional communities and on the farm sector, with farm GDP 2.2 per cent lower through the year to the December quarter. Over the past 2 years, farm incomes have fallen by over 30 per cent.
Living standards, as measured by the ABS’s preferred measure of real net national disposable income per capita, are 1.2 per cent higher through the year.
Productivity growth increased modestly by 0.2 per cent in the quarter to be 0.4 per cent higher through the year in trend terms.
I have spoken numerous times in recent months about the need for all levels of government and business to address Australia’s productivity challenge. To this end, the Morrison Government has legislated the biggest tax cuts in two decades, committed to a $100 billion infrastructure pipeline, invested in 80,000 new apprenticeships, and announced a new wave of deregulation reforms to boost business investment and create jobs.
As the RBA Governor has said, “Australia’s economic fundamentals remain very strong and they provide a solid foundation for us to be optimistic about the future”. But we are confronted by significant domestic and international challenges with the full economic impact of the bushfires and coronavirus still ahead of us.
Australia is well placed to navigate these challenges with our economic plan and responsible budget management contributing to the resilience of the Australian economy which is reinforced in today’s National Accounts.