The Australian Bureau of Statistics’ (ABS) release of the Q2 2016 National Accounts last week officially marked 25 years of continuous economic growth of the Australian economy – a remarkable achievement. Gross Domestic Product (GDP) growth was 0.5% for the June quarter and 3.3% for the year to June.
This recent growth was broadly led by a strong increase in public expenditure (of 4.5% for the quarter) and dwelling investment (1.6% for the quarter), with modest growth in consumer spending observed as well (0.4% for the quarter).
Meanwhile, net exports dragged overall GDP growth for the quarter to 0.3% lower than Gross National Product and business investment contracted significantly, at -5.8% for the quarter.
The June quarter also marked the second in a row where disposable income growth outpaced GDP growth. Net national disposable income growth was 0.6% for the June quarter and 2.3% for the year to June. Nominal GDP growth was 1.3% for the year to June.
The growth in income has been supported by a lower $A, which has tempered the fall in commodity prices, and has subsequently assisted in profit growth for many exporters. More recently, the terms of trade increased over the June quarter by 2.3%, the first increase since the December quarter of 2013 and largest quarterly percentage increase in five years.
Improvements in global coal and iron ore prices were major elements of the terms of trade improvement, although due to significant overcapacity in steel and some other industrial areas globally, recovery may not be sustained.
That said, the recent improvement suggests that the worst of the recent income squeeze in Australia from falling commodity prices may be over.
On an industry basis, mining and real estate are showing the strongest rates of growth over the past year (see Chart 1 below).
Mining output grew by 9.0% over the year, as the industry moved from the construction boom to a significant rise in production (the dividend for all that investment). On the other side of the same coin, mining investment has contracted significantly.
The real estate sector has been fuelled predominantly by lower interest rates, which have prompted more investors into the residential market, produced very strong price gains in Sydney and Melbourne, and increased transactions. As the reward to save has fallen, the demand for other assets such as property has grown, pushing output growth for real estate services up by 8.6% over the year.
Finance and insurance services were also boosted by lower interest rates, growing by 5.3% over the year to June.
Another high growth industry was information media and telecommunications, which grew by 4.5% over the year, reflecting the increasing share of business spend being allocated to IT.
At the other end of the spectrum, manufacturing continues to contract with rationalisation in many parts of the industry, while volatility continues to be seen in output from agriculture, forestry and fishing.
Growth in real value added by industry, year to June 2016
Australia’s economic growth continues along at a handy pace, with some improvement on the income side in the latest data. However, the data also confirms that the recent outcome from interest rates being moved lower is seen largely in more real estate transactions, while the rate of business investment continues to move downwards.
David Rumbens is a Deloitte Access Economics partner and co-author of our Weekly Economic Briefing.