ANALYSIS OF RESULTS


OVERVIEW OF AUSTRALIAN ECONOMY IN 2008-09

The Australian economy expanded by 1.1% in 2008-09. Real net national disposable income grew more strongly than GDP (up 3.1% in 2008-09), reflecting strong growth in the Terms of trade (up 6.9%). This is the tenth consecutive year of improvements in the Terms of trade. It has increased 75.1% since 1998-99.

The Household saving ratio was 4.5% for 2008-09, up from 0.5% in 2007-08. The index of Market sector(footnote 1) labour productivity increased by 0.3%.

The major contributor to GDP growth in 2008-09 was Gross fixed capital formation, increasing 3.9% and contributing 1.1 percentage points. Final consumption expenditure contributed 0.9 percentage points to GDP growth, with growth of 3.0% in Government final consumption expenditure and 0.8 % in Household final consumption expenditure. Total private gross fixed capital formation increased 3.3%, contributing 0.8 percentage points to GDP growth in 2008-09, driven by growth in Machinery and equipment investment (up 5.4%) and Non-dwelling construction (up 7.9%). The major detractor from GDP growth was changes in inventories. The level of inventories fell $6.4 billion through 2008-09, detracting 1.1 percentage points from GDP growth.

From an industry perspective, declines were recorded in the value added of a number of industries in 2008-09 including Manufacturing (-6.2%), Transport, postal and warehousing (-0.9%), Financial and insurance services (-1.5%) and Administrative and support services (-5.6%). These declines were more than offset by increases in a range of industries including Agriculture, forestry and fishing (16.2%), Mining (2.2%), Electricity, gas, water and waste services (5.0%), Wholesale trade (1.6%) and Retail trade (1.4%).

In the Income components of GDP in 2008-09, there was growth in Compensation of employees of 5.6%, and growth in Gross operating surplus (GOS) of 8.2%. The growth in GOS was driven by growth in Non-financial corporations (9.4%) while Financial corporations GOS growth was relatively weak (1.7%).

The annual movements for the chain price indexes for GDP and Domestic final demand were 4.8% and 3.5% respectively. The gap in price movements is mainly due to changes in the prices paid for imports and the prices received for exports.

The Net worth of Australia is defined as the difference between Total assets and Total liabilities. Australia's Net worth at 30 June 2009 was estimated to be $6,901.5 billion in current prices, an increase of $164 billion (2.4%) since 30 June 2008.


GDP

Following the fall in GDP in volume terms in 1990-91 and a flat result in 1991-92, there have been 17 years of consecutive growth. In 2008-09 GDP increased by 1.1%. This is the lowest growth since 1991-92. For some analytical purposes it is important to understand the impact of population growth on movements in GDP. In 2008-09, GDP per capita decreased by 0.8%. This is the first time GDP per capita has declined since 1991-92. Growth rates in GDP and GDP per capita are presented in the following graph.

RNNDI

Another measure of national economic activity is Real net national disposable income (RNNDI). This measure adjusts the volume measure of GDP for the Terms of trade effect, Real net income from overseas and Consumption of fixed capital (depreciation). In 2008-09, RNNDI (up 3.1%) grew more strongly than GDP, reflecting strong growth of 6.9% in the Terms of trade (see International Trade, page 12).

Household saving

The Household saving ratio is another key aggregate in the national accounts. Household saving cannot be measured directly. It is calculated by deducting Household final consumption expenditure from Household net disposable income.

The Household saving ratio began trending downwards in the mid 1970's, and was negative from 2003-04 to 2004-05, implying that households spent more than they earned during that period. In 2005-06 the Household saving ratio became positive again (0.4%) and this has continued to 2008-09, with the ratio at 4.5% in 2008-09.

Caution should be exercised in interpreting the Household saving ratio in recent years, because major components of household income and expenditure may be subject to significant revisions.

EXPENDITURE ON GDP

Final consumption expenditure increased 1.3% in 2008-09, and contributed 0.9 percentage points to GDP growth.

Household final consumption expenditure (HFCE) increased 0.8% and contributed 0.4 percentage points to GDP growth in 2008-09. In recent years household consumption has contributed between 1.7 percentage points and 3.0 percentage points to GDP growth. The main contributor to growth in HFCE in 2008-09 was Rent and other dwelling services (up 2.7%). See Table 53 for more details.

Government final consumption expenditure increased 3.0% in 2008-09. It contributed 0.5 percentage points to growth in GDP. In recent years, Government final consumption has contributed between 0.3 percentage points and 0.7 percentage points to GDP growth.

Growth in Private investment increased 3.3% in 2008-09, compared to a 10.7% increase in 2007-08. Private investment contributed 0.8 percentage points to GDP growth, down from 2.4 percentage points in 2007-08. Investment in Machinery and equipment, and Non-dwelling construction increased 5.4% and 7.9%, respectively, and contributed 0.4 and 0.5 percentage points to growth to GDP, respectively.

Investment in Alterations and additions fell 4.3% in 2008-09, while New and used dwellings fell 0.1%. Total dwelling investment fell 2.1% and detracted 0.1 percentage points from GDP growth.

Public gross fixed capital formation increased 8.7% in 2008-09 after increasing 7.9% in 2007-08. Investment by public corporations rose 18.3% and investment by general government increased by 3.4%. Public investment contributed 0.4 percentage points to GDP growth in both 2007-08 and 2008-09.

Growth in the domestic economy as measured by Gross National Expenditure (GNE)(footnote 2) showed an increase in 2008-09 of 1.1%, the same growth rate as GDP. The total expenditure in 2008-09 by Australian residents on final goods and services showed an increase of 1.1%. Over the past seven years GNE has grown faster than GDP. The difference between GNE and GDP is due to a positive contribution from Net exports and a negative contribution from the Statistical discrepancy. For more information on net exports please refer to the section on International Trade, page 12.

INDUSTRY

In 2008-09, the industry with the largest share of GDP (at basic prices excluding ownership of dwellings) was Finance and Insurance services with a share of 12%. Manufacturing was the second largest industry with a share of 10%. Prior to 2006-07 Manufacturing was the largest industry. Mining has increased as a share of GDP from 5% throughout the 1990's to 8% in 2008-09, it is now equal with construction as the third largest industry.

INCOME FROM GDP

The wages share of total factor income remained relatively stable during the 1990's. The highest recorded value of the wages share of total factor income was 62.7% in 1974-75. In more recent times, the wages share has been trending down to be 54.3% in 2007-08 and 54.0% in 2008-09.

The profits share (based on Gross operating surplus for Financial and Non-financial corporations) of Total factor income reached 27.7% in 2008-09 and this represents the highest share recorded since 1959-60. The profits shares recorded since the late 1980's are at a distinctly higher level than those at any time since 1959-60. The profit share measure should not be interpreted as a direct measure of 'profitability' for which it is necessary to relate profits to the level of capital assets employed.

National net saving was positive in 2008-09 at $98.5 billion or 7.9% of GDP. This was the highest proportion of GDP since 1989-90. Household net saving generally increased from 1959-60 to a peak in 1973-74 of 12.2%. The series then gradually decreased, eventually reaching its lowest point at -0.9% in 2004-05 (a net saving level of -$8.1billion). Since 2004-05 Household net saving has again been increasing and in 2008-09 household saving was 2.6%, the highest since 1996-97. Household net saving was $32.8 billion.

When analysing household saving it is useful to consider Household net worth, currently at $5,100.5 billion at 30 June 2009. For more information please refer to Balance Sheets, page 10.

In 2008-09, Financial corporations net saving was 3.6% of GDP ($45.5 billion). General government net saving represented -0.6% of GDP (-$7.86 billion) and net saving for Non-financial corporations represented 2.2% of GDP ($28.1 million).

Prices in the National Accounts

Chain Price Indexes are used to measure prices changes. The annual movements in GDP and Domestic final demand chain price indexes for 2008-09 were 4.8% and 3.5% respectively. This gap in price movements was mainly caused by changes in prices paid for imports and the prices received for exports. Prices of Exports of goods and services showed an increase of 19.8%, driven by increases in Coal (up 120.1%), Metal Ores (up 23.3%) and Non-monetary Gold (up 28.9%) in 2008-09. This was partly offset by a fall in metals (down 18.4%).

Prices of Imports of goods and services showed an increase of 12.1%. Imported consumption goods prices rose 12.0%, driven by Consumption Goods nes (up 11.2%), Clothing and footwear (up 24.5%) and Food & Beverages (up 14.4%). Imported capital goods prices rose 14.3%, driven by Machinery (up 19.1%) and Capital Goods nes (up 13.6%). Imported Intermediate goods prices rose (up 9.9%), driven by Processed Industrial Supplies (up 19.3%), Parts for Other Capital Goods (up 13.3%) and Chemicals (up 30.6%). Offset by a fall in Fuel and lubricants (down 8.0%).

The chain price indexes for the other major components of GDP, Household final consumption expenditure and Gross fixed capital formation, showed increases of 4.2% and 1.9% during 2008-09. See Table 7 for more details.


PRODUCTIVITY

The Multifactor productivity (MFP) estimates presented in Table 22 have been produced for the group of 12 ANZSIC06 industries (divisions A to K and R) which is the grouping nearest to the market sector as defined in ANZSIC93 (divisions A to K and P).

This coverage of MFP measurement deviates from the revised definition of 'market sector' which is adopted with this release of ASNA. Expanding the definition of the 'market sector' to include new industries reflects the growing influence of services industries in the Australian economy. Experimental MFP estimates for the expanded market sector definition (Divisions A to N, R and S) will be published in the productivity datacube Experimental estimates of industry multifactor productivity, 2008-09 (5260.0.55.002), due to be released in January 2010. These indexes will commence from 1994-95, coinciding with the availability of improved output indicators for the four new industry divisions that have been added to the market sector.

The MFP estimates in this issue reflect SNA08 changes. The main SNA08 changes impacting on MFP measures the capitalisation of research and development, cultivated biological resources (comprising orchards, plantations and vineyards combined with livestock fixed assets) and ownership transfer costs related to non-dwelling construction.

The index of selected industry Multifactor productivity (MFP) on an hours worked basis fell 2.7% in 2008-09, reflecting a 0.3% decrease in Gross value added for the selected industries and an increase of 2.5% in total labour and capital inputs. Hours worked in the selected industries fell 0.1% in 2008-09, resulting in a labour productivity decline of 0.3%. Capital services continued to grow strongly in 2008-09, recording a growth rate of 5.2%. The increase in Capital services, combined with a decrease in Gross value added, resulted in a fall of 5.3% in capital productivity.


Productivity growth cycles

The analysis of productivity growth cycles (see Glossary) presented in past issues of the ASNA has been excluded temporarily. The main reason is that some historical ANZSIC93 movement indicators are not suitable for industries that are growing or declining at different rates according to the new industry classifications. The ABS is currently improving these indicators so that MFP growth cycles can be reinstated in the next release. In the interim, users interested in the long time span productivity measures commencing 1964-65 can access these from the ABS web in the 'Past and future releases' tab for this issue.


BALANCE SHEETS

Australia's Net worth at the end of June 2009 was estimated to be $6,901.5 billion in current prices, an increase of $164.0 billion (up 2.4%) since 30 June 2008. Major contributions to this increase came from Subsoil assets (up $224.2 billion) and Machinery and equipment (up $77.9 billion). These were offset by holdings of Shares and other equity (down $75.7 billion), and value of Land (down $140.2 billion). Transactions in assets (both capital and financial) and liabilities contributed $117.8 billion to the change in Net worth, compared to almost no change in holding gains. The last time transactions were greater than holding gains was in 1991-92.

Australia's Net international investment position as at 30 June 2009 was a Net foreign liability of $714.2 billion, up $52.2 billion (up 7.9%) on the position a year earlier.

Australia's real net worth rose 2.3% over the year ended 30 June 2009, from 2.8% growth for the previous year.

Balance sheets are produced in current prices for each institutional sector in the economy. Of these, the household sector had the highest net worth at $5,100.5 billion at 30 June 2009, a decrease of $238.5 billion (down 4.5%) from the previous year. Transactions in assets and liabilities during 2009 were $85.2 billion, compared to a loss on holding gains of $347.9 billion.


INVESTMENT AT CURRENT PRICES

The level of Investment is about a quarter of the level of the annual GDP. Understanding which sectors are investing and expanding their future economic capacity provides an insight into the underlying dynamics within the economy.

As a proportion of GDP, investment by Non-financial corporations fell during the 1970's and was reasonably stable up to the 1990's. It has generally been above 10% and in 2008-09 investment by Non-financial corporations was 15.2% of GDP. Household investment as a proportion of GDP declined steadily between 1959-60 and 1973-74 but has since remained steady at around 10% of GDP. In 2008-09 the ratio to GDP was 9.8%. General government investment as a proportion of GDP peaked at 5.4% in 1967-68 and has generally fallen since then. It was 3.2% of GDP in 2008-09. The highest ever level of Financial corporations investment, expressed as a proportion of GDP, was recorded in 1988-89 (2.0%). It has generally fallen since then and was 0.7% of GDP in 2008-09.

In terms of the different asset types, in 2008-09 private Machinery and equipment investment represented the largest percentage share at 25.5% of total gross fixed capital formulation, compared to 23.8% for private Non-dwelling construction.

Over the last 10 years, private Machinery and equipment has fallen from around 27% to 25.5% in 2008-09 as a share of total gross fixed capital formation (GFCF). The relative shares of investment in other asset types have remained relatively stable over the last 10 years, except non-dwelling construction which increased from 18.5% to 23.8% and dwellings which decreased from 21.9% to 19.1%.


INTERNATIONAL TRADE

The growing importance of international trade to the Australian economy is illustrated by the following graph which shows the ratios of exports and imports of goods and services to GDP in current prices since 1959-60. In 2008-09 the imports ratio was 22.3% and the exports ratio was 22.7%

Since 2000-01 volumes of Imports have grown more strongly, up 88.8%, compared to 16.5% growth in volume of Exports. The slower growth in Exports was mainly driven by weak growth in rural goods exported. Over the past eight years, rural goods exported decreased by 9.7%. The decrease was largely driven by a fall in exports of cereal grains and cereal preparations, down 14.1%.

While in volume terms Imports have been growing faster than Exports, the prices received for Exports have been growing faster than the prices paid for Imports. The Terms of trade represents the relationship between the prices of exports and imports. An increase (decrease) in the Terms of trade reflects Export prices increasing (decreasing) at a faster rate than Import prices.

The strong growth in Terms of trade over the past eight years reflected over 61.1% growth in Export prices and a fall in Import prices of 1.6%. See Prices in National Accounts on page 8 for more details on Export and Import prices. In 2008-09, the Terms of trade increased by 6.9%.

Net exports represent the difference between Exports and Imports. Net exports detract from GDP growth when the change in the volume of Imports has been greater than the change in the volume of Exports. Since 2000-01 Net exports have detracted around 7.1% from GDP growth, in most part from increasing Imports.

Since 2000-01, when the contribution of Net exports to GDP growth was 1.8%, the contribution of Net exports has been slowly trending downwards, reaching -2.0% in 2007-08, with a turnaround in 2008-09 of a positive contribution of 1.1%.

In addition to the trade in goods and services, the flow of funds between Australia and overseas is an important component of the relationship with the rest of the world. Australia has generally been a net borrower of funds from overseas. In the national accounts, this situation is reflected by a negative value for net lending to non-residents. The last time Australia was a net lender of funds to the rest of the world was in 1972-73. The ratio of net borrowing from overseas to GDP in 2008-09 was 3.0%, down from 6.2% in 2007-08.

1 The market sector of the economy consists of the following industries : Agriculture, forestry & fishing, Mining, Manufacturing, Electricity, gas, water & waste services, Construction, Wholesale trade, Retail trade, Accommodation & food services, Transport, postal & warehousing, Information media and telecommunications, Finance & insurance services, Rental, hiring & real estate services, Professional, scientific & technical services, Arts and recreation services and Other services. <back
2 The total expenditure within a given period by Australian residents on final goods and services. <back