Today's National Accounts show the Australian economy has outperformed every other advanced economy in the March quarter, recording positive growth in the face of a savage global recession.
GDP rose by 0.4 per cent in the March quarter to be 0.4 per cent higher through the year, boosted by early and substantial policy actions by the Rudd Government and the Reserve Bank.
This positive outcome is a testament to Australia's resilience amid the global recession, and compares starkly with nearly all other advanced economies.
Of the other 22 OECD economies that have reported March quarter outcomes, 20 have contracted. G7 economies contracted by an average of 2.2 per cent in the March quarter.
Despite broader weakness in the economy, household consumption spending rose 0.6 per cent in the quarter, contributing 0.3 percentage points to quarterly GDP growth.
Crucially, without the Government's stimulus payments, Treasury estimates the Australian economy would have contracted in the March quarter by around 0.2 per cent.
Household consumption has now grown by 0.8 per cent through the past year. By comparison, private consumption in the G7 area (excluding Italy, due to lack of equivalent data) has contracted by 1.4 per cent over the same period.
As planned, the Government's economic stimulus payments are helping to support demand and employment until direct public investments come fully on stream. Public investment recorded a small negative contribution to growth in the quarter, but should pick up in coming quarters as the next phase of the Government's stimulus plans take effect.
Despite the positive GDP result, today's data provide clear evidence that the global recession is hitting the Australian economy, and reinforces the urgent need for the Government's nation‑building investments to support economic activity and jobs until global conditions improve.
The weak and uncertain global outlook saw sharp falls in private investment in the March quarter. New private machinery and equipment investment fell by 9.5 per cent in the quarter; non-dwelling construction fell by 4.3 per cent. These large falls are consistent with the capital expenditure expectations data released last week, which pointed to a sharp downgrade in business investment intentions over the next year.
Dwelling investment also fell in the quarter by 5.6 per cent, however strong support for housing activity is expected in coming quarters as the Government's housing stimulus measures and low interest rates flow through to construction activity.
The weak global economy is impacting on Australia's export sector. While export volumes continued to hold up well, export prices fell sharply by 9.9 per cent in the quarter. The terms of trade fell by 7.8 per cent in the quarter – the largest fall since 1974. Export values fell by around $6 billion in the quarter – the third biggest fall on record.
One of the effects of the falling terms of trade has been to lower the GDP deflator – the index of prices of goods and services produced in the economy. The GDP deflator fell by 1.0 per cent in the quarter and nominal GDP fell by 0.6 per cent. This is the sharpest quarterly contraction in nominal GDP since 1963. The weakness in nominal GDP is reflected in weaker incomes and, over time, will be reflected in lower Government revenues.
Today's National Accounts confirm that the Government's economic stimulus is working well, and is helping to position Australia among the best performers in the developed world.
The Australian economy is not out of the woods yet, and the full impacts of this global recession still have some way to run. But the Government's economic stimulus strategy is clearly helping to cushion Australia from the worst impacts of the global recession and ensure we are well placed to seize the opportunities presented by the global recovery when it arrives.
3 June 2009