Australia’s economy witnessed a very strong growth since the third quarter 2012 as the Gross Domestic Product (GDP) grew 1.1% from December 2015 quarter to March 2016 against quarterly change GDP growth figures of past six years as per economic data released by Australian Bureau of Statistics on 01, June 2016. This strong quarterly GDP growth has led to the strong yearly GDP growth of 3.1% from March quarter 2015 to March quarter 2016 beating the expectations of 2.8% expansion. The GDP growth was revised downward to 2.9% in the December quarter by the Australian Bureau of Statistics.
GDP Trend – Volume measures (Source: Australian Bureau of Statistics)
Historically, the GDP Annual Growth Rate in Australia has averaged 3.50% from 1960 till now. The Australian economy had experienced all time high of 9% of GDP growth in the first quarter of 1967 and had reached a record low of -3.50% in the second quarter of 1983.
The service sector comprises 65% of total GDP, while 13.5% of GDP is from mining sector and 11% is from manufacturing sector. Construction sector accounts 9.5% of sector and agriculture constitutes 2% of GDP. Therefore, the service sector and mining are two major areas for growth of GDP.
The mining sector is very important for the Australian economy as it had attracted huge investment in resources infrastructure for the key commodity exports by the companies residing outside Australia. The mining sector grew at 6.2% in the March quarter of 2016 after a moderate growth of 1.4% in December quarter of 2015 driven by growth of 7.6% of Iron ore mining which is fifteenth consecutive quarter of growth, and the growth of 5.1% in Oil and gas extraction. Coal mining rose 3.1%, while mining support services grew 2.4% and other mining growth was of the order of 8.2%. The manufacturing sector grew modestly by 0.2% as there is a growth in Food, beverage and tobacco products, and Machinery and equipment but there is a fall in Petroleum, coal, chemical and rubber products and Metal products. The agriculture grew 2.5% primarily by the increase of livestock production driven by strong international demand as well as increase of cotton and barley yields. The construction sector posted the negative growth of 1.1% in the March quarter due to weakness in non residential building construction and heavy and civil engineering construction.
The strong growth of GDP is due to exports of goods and services growth of 4.4% as the exports of goods rose 4% and exports of services rose 6.1%. But there is net fall in imports by 0.8% due to fall in Capital goods and intermediate goods which is offset by rise in non-monetary gold and imports of services. The net exports grew by much more than expected in the March quarter beating the consensus estimate of 0.7%.
Contribution to GDP (Source: Australian Bureau of Statistics)
Service sector forms 65% of GDP. The real net national disposable income per capita which is a measure of living standards of the people slid 2.6%. This is a fall for eight consecutive quarters which indicates that the living conditions are falling from the past two years due to falling in real wages, reduced working hours resulting lower government tax revenues. Labor costs for employers fell during the March quarter as well which is a decline for the second consecutive quarter leading to lower workers’ incomes. This will result in deflation while the companies and consumers might delay their spending. Meanwhile, the household final consumption expenditure witnessed the modest growth of 0.7% in the March 2016 quarter driven by a rise in insurance and other financial services, transport services and the rise of government final consumption expenditure.
Selected Expenditure Chain Price Indexes (Source: Australian Bureau of Statistics)
In the March quarter 2016, the compensation of employees increased 0.8%, and the number of employees recorded in the Labor Force survey has grown 0.4%. As a result, the average compensation per employee has increased 0.4%. In the March quarter 2016, GDP per hour worked rose by 0.5% over the quarter and 1.1% through the year. For the full year from the March quarter 2015 to the March quarter 2016, the largest contributors to total trend growth are Mining, Financial and insurance services, Public administration and safety, Construction and Retail trade. The Manufacturing is the largest detractor to GDP growth trend.
The geographies contributing to GDP growth in the March quarter are New South Wales State and Australian Capital Territory State as the growth in demand increased by more than 1% while Victoria State, Queensland State, South Australia State and Tasmania State growth in demand remained flat; and Western Australia State witnessed the negative growth in demand of 1.2% as a result of fall in non dwelling construction.
According to the Australian Bureau of Statistics, the private sector capital expenditure on buildings, equipment, plant and machinery has fallen 5.2%, seasonally adjusted. For the full year it is down 15.4%. The Mining investment has fallen 12% in the March quarter and manufacturing sector witnessed 10% fall. From the past four years the total business investment has been falling in real terms since mid 2012 and is now down more than 25%.
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