As an historical record and explanation, the March quarter national accounts help us understand what the Australian economy was doing in the first three months of the year.
As a guide to where it is now, and what it might do in coming months, the accounts are useful, but not very accurate.
We have a reasonably good idea of where and why the economy is heading upwards, but there are a couple of external factors in Europe’s debt woes, and worries about the Chinese economy, which now dominate market thinking.
And they also have the attention of the Reserve Bank, as the Tuesday interest rate non-decision and explanatory statement made clear, and they are also in the front of the minds at Federal Treasury.
But they are still concerns only, no impact has been felt on Australian economic growth, even though the dollar, share prices and commodity markets have been affected.
The damage from Europe’s debt problems and those worries about China will be reflected first on exports and on the value of the dollar as risk fears rise and we see investors selling commodity-based economies like Australia.
Of greater impact was the RBA’s rate rises late last year and in February and March. They appear to have steadied growth in the first quarter.
Figures for the March quarter growth from the ABS revealed gross domestic product rose 0.5% from December when it jumped more sharply than originally estimated, by a revised 1.1% (0.9% originally).
The March quarter rise matched the forecast from market economists.
That produced an annual rate of 2.7% for the year to March, down from 3.1% in the 12 months ending December.
The slowing in the rate of growth reflects the impact of rate rises by the Reserve Bank: the three in late 2009 and one in February would have been the more important.
The rate rises helped household spending rise by just 0.6% in the quarter, down from the 0.9% rate in the December quarter.
Dwelling investment fell 1% in the quarter, with a substantial fall in new and used dwelling investment, only partly offset by a rise in alterations and additions. That seems to have continued into April.
New private business investment fell by 3.3%, with new machinery and equipment investment falling by 6.2%.
This partly reflects the unwind of the effects of the Small Business and General Business Tax Break, which brought forward considerable investment spending into the latter part of 2009.
Private non-residential building investment fell further in the quarter and remains at a depressed level.
Without the controversial schools program, activity and employment in this sector would be even lower.
Engineering construction also declined in the quarter, but activity remains at a high level and there is considerable work in the pipeline that will flow through in coming quarters (as the private new capital spending forward estimates last week highlighted).
Corporate gross operating surplus rose by 1.3% in the March quarter after a strong December quarter. Gross mixed income rose by 5.6% in the quarter and is now up by over 15% over the year, reflecting better outcomes for smaller businesses.
New public investment spending rose by 12.5%, underpinned by a sharp rise in state and local government investment.
The continuing strength of public investment – up more than 40% over the past year – has been driven by the government’s stimulus investment, particularly on education infrastructure.
The terms of trade rose by 4.2% in the quarter, and further rises are in prospect as iron ore, coal, and oil and gas prices remain at high levels.
Import volumes rose by 1.8% in the quarter, in line with the pickup in domestic spending, but export volumes fell 0.5% in the March quarter due to a temporary fall in coal exports caused by cyclone activity and flooding in Queensland.
The solid growth in the economy and the pickup in the terms of trade saw nominal GDP rise by 2.1% in the quarter, to be up over 4% over the year.
The ABS said non-farm GDP grew 0.7% in the quarter, the terms of trade rose 4.2% and real gross domestic income jumped 1.3% as the improvement in the rebound of the resources exporting sector kicked, as predicted by the Reserve Bank and Federal Treasury.
The ABS said real net national disposable income (which adjusts the volume measure of GDP for the terms of trade effect and real net incomes from overseas and Consumption of fixed capital), rose 1.8% seasonally adjusted in the quarter.
"Growth over the past 4 quarters was 1.5% compared with 2.7% for GDP," the ABS commented.
