Economic Report Issue 2, June 2012
For the first time since the global financial crisis, the Australian economy grew faster than its long-term trend rate of growth. Over the year to the March quarter, GDP rose by 4.3% in real terms, a very strong result that surprised virtually everyone. Few forecasters are faring well at the moment, as Australian economic indicators seem to be pointing in every conceivable direction. It should also be remembered that the National Accounts are backward-looking; we know what happened in March, but we don’t know how much the economy has grown in the current quarter. The National Accounts should put to rest one pernicious myth – the notion that the rate of productivity growth has fallen since the Fair Work Act came into effect. Labour productivity grew at its fastest pace in a decade in the year to March, a stunning result. While the quarterly figures fluctuate and shouldn’t be relied on too heavily, business groups and others used the same measures to attack the Fair Work system when productivity fell in early 2011. It would be pleasing if the productivity ‘debate’ could now move onto topics of real importance, like improving the nation’s skills and boosting infrastructure investment.
This report complements the ACTU Wages Report and the ACTU Jobs Report, each of which is released quarterly. If you have comments or questions about this report, or suggestions for future reports, please contact Matt Cowgill at mcowgill@actu.org.au.
Data at a glance Level
Quarterly change
Year-ended change
$1.37 trillion*
1.3%
4.3%
$60 000*
1%
2.9%
Labour productivity (total economy)
-
1.9%
3.9%
Labour productivity in the market sector
-
2.3%
5.3%
Terms of trade (Index, 2009-10=100)
119.8
-3.1%
-3.3%
Wages share
54.6%
1.3pp
1.2pp
Profits share
27%
-1.2pp
-0.7pp
Real gross domestic product (GDP) Real GDP per capita
Source: ABS 5206. Underlying CPI is the average of the trimmed mean and weighted median. All figures are seasonally adjusted unless otherwise noted. The gender pay gap is calculated using full time adult AWOTE. *Annualised quarterly figure, rounded.
ACTU Economic Report | June 2012
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Economic growth In a result that seemed to surprise all and sundry, the
Figure 2, below, shows the growth in real gross value
National Accounts for the March quarter showed that the
added (GVA) for each industry over the year to the
Australian economy grew strongly, by 4.3% over the
March 2012 quarter. These figures show real growth,
year in seasonally adjusted terms and 3.6% using the
which means the change in the volume of each
ABS trend figure. The ABS advises using the ‘trend’
industry’s output rather than the value of that output.
estimate of growth, which is the black line in Figure 1,
Figures showing the change in the nominal value of
rather
industries’ output are only released for each financial
than
the
more-commonly
cited
seasonally
adjusted figure.
year rather than each quarter.
The year between March 2011 and March 2012 was the
Mining was the largest contributor to growth in the year,
first 12 month period since 2007 that the Australian
adding around 0.7 percentage points to the 4.3% total.
economy has grown faster than its long-term average
The second largest contribution was from the financial
pace. Growth for the December quarter was revised up
and insurance services industry, which added 0.5pps.
slightly by the ABS, meaning that the economy grew a little more rapidly in 2011 than we had previously
Figure 2: Growth by industry – year to March 2012 Mining
thought.
11.3%
Other services
Figure 1: Australian GDP growth 6%
9.6%
Health care & social assistance
5.5%
Wholesale trade
5.5%
Financial & insurance services
5.4%
Professional, scientific &… Transport, postal &…
5%
Public administration & safety Long term trend ≈
4%
3.5%
Rental, hiring & real estate…
3%
1% Seasonally adjusted
2.8%
Retail trade
2.8%
0% Mar 07
2.3%
Arts & recreation services
1.5%
Manufacturing
0.6%
Administrative & support…
0.5%
Information media &…
-1.2% -1.9%
Electricity, gas, water &…
Trend
2.9%
Education & training Accommodation & food…
2%
5.1% 5.0%
Construction
3.25%
5.3%
-2% 0% 2% 4% 6% 8% 10% 12% Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Source: ACTU calculations based on ABS 5206.
The strongest real growth over the year was in the mining industry, in which real output rose by 11.3%. The
Source: ACTU calculations based on ABS 5206.
Growth in the mining industry in the year to March was the largest in several decades, but real output growth in
relative small ‘other services’ industry came next,
the industry is quite volatile, as shown in Figure 3. The
growing by 9.6% over the year. ‘Other services’ includes
mining boom has been much more apparent in nominal
repair and maintenance; personal services; and private households employing staff. The utilities and information media industries contracted over the year.
growth figures, which include the change in the prices of output, than these real figures which show only the change in volumes.
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above. It’s estimated that the resources and resource-
Figure 3: Real growth in mining and the total economy
related sectors of the economy will account for 15 to 20
12%
per cent of total GDP in the coming years. It should also
10%
be remembered that the split between industries is not
8%
so severe on all measures (like employment growth
6%
rates) and that there’s considerable diversity within the
4%
‘slow lane’ of the economy.
2%
The multi-speed economy is also apparent in some of
0%
the data on state-level economic activity. To put it
-2%
simply, the northern and western parts of the country -4% -6% Mar 92
have seen substantial growth, while the south-eastern Mar 96
Mar 00 Mining GVA
Mar 04 Mar 08 Real GDP
Mar 12
corner of the country has seen modest growth or even contraction in the case of Tasmania. A divergence between regions is also somewhat apparent in the
Source: ACTU calculations based on ABS 5206.
‘multi-speed’.
employment data, though it is much less severe than the
Treasury estimates that the resource-related sections of
gap in output (for more on this see the forthcoming
the economy have grown at an average annual pace of
ACTU Jobs Report).
Economic
growth
has
clearly
been
over 10% in the past two years, whereas the nonresource related sectors have grown by less than 2%.
Figure 5 shows the growth in State final demand in the
This gap between sectors is expected to fall slightly in
year to March – the Northern Territory and WA lead the
the coming years, although still remain large.
way. Note that these final demand figures can’t be compared to the overall GDP or industry gross value
Figure 4: Growth in the resources-related and nonresources sectors of the Australian economy
added growth rates. The ABS releases figures on the comparable measure, gross state output once a year. Figure 5: Growth in State final demand – Year to March 2012 NT
16.9%
WA
14.5%
Qld
7.5%
ACT
3.0%
Vic
2.7%
NSW
1.9%
SA Source: Modified version of Commonwealth Budget 2012-13, Chart 2.
Treasury’s
analysis
is
contained
in
the
recent
Commonwealth Budget, and is reproduced as Figure 4,
Tas
0.7% -0.8%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Source: ACTU calculations based on ABS 5206.
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Productivity and the wages share of income Australia’s rate of productivity growth increased in the
on these quarter-to-quarter measures. Nevertheless,
mid-1990s and has been falling ever since. This issue
they do give comfort to those who have claimed that
was discussed in the December 2011 edition of the
much of the productivity ‘debate’ has been waged on
ACTU Economic Report, and at length in an ACTU
false premises.
Working Australia Paper titled Working By Numbers. This time last year, opponents of the current industrial In summary, the argument of that paper was that Work
laws used the quarterly figures in the National Accounts
Choices didn’t help our productivity performance, and
to claim that the Fair Work Act was damaging Australia’s
that Fair Work hasn’t hurt. Investments in skills and
productivity. The ACTU argued that this was false;
infrastructure are the sources of real productivity growth,
instead, productivity had temporarily dipped as a result
it was argued. We also pointed out that there is
of the natural disasters of early 2011, which had affected
consensus among economists that some portion of the
economic output far more than the number of hours
growth slowdown is due to factors related to the mining
worked. A simple comparison of productivity growth
boom, some of which are temporary and will be reversed
rates under different industrial relations regimes, as in
as projects are constructed and begin to generate
Figure 6, should be sufficient to put to bed the notion
output.
that IR is the primary factor affecting productivity growth, or that Fair Work has negatively affected growth to any
Whichever way the productivity figures are examined,
discernible extent.
the numbers in the latest National Accounts are strong. Labour productivity in the market sector rose by 2.3% in
Another confected panic in recent times has been the
the quarter and 5.3% over the year, the strongest annual
long-mooted,
growth in a decade.
ACTU Wages Report contains more information on the
Figure 6: Labour productivity growth (market sector)
solid, steady pace of wages growth, but the national
6%
never-sighted
‘wages
breakout’.
The
accounts do show that the wages share of national
5%
income increased in the March quarter. It remains below
Work Choices
4%
Fair Work Act
the average for 1990 to 2007.
Figure 7: Wages share of national income Per cent Average 56% from 19902007, 54.8% 55%
3% 2% 1% 0%
54% -1%
53% -2% Mar 02
Mar 04
Mar 06
Mar 08
Mar 10
Mar 12
Source: ACTU calculations based on ABS 5206.
The quarterly productivity figures should be used with some
caution:
they’re
subject
to
revision,
and
economists tend to prefer to measure productivity over the course of a growth cycle rather than rely too heavily
52% 51% 50% Mar 02
Mar 04
Mar 06
Mar 08
Mar 10
Mar 12
Source: ACTU calculations based on ABS 5206.
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Economic outlook Australia’s economy is expected to grow at around its trend rate of growth over the coming financial year. The
Vehicle sales rose by 2.4% in May and 22.4% over the
Commonwealth Budget forecasts growth of 3.25% in
year, which is a positive sign. The retail trade figures for
2012-13 and 3% in the following year. The RBA’s
April were soft, showing a contraction in turnover in the
forecast is in the range of 2.5% to 3% for 2012-13. The
month, although this measure has been a decreasingly
IMF expects growth of around 3% this calendar year and
useful proxy for the overall pace of consumer spending.
3.5% next year. In response to low inflation and a worsening growth These forecasts were all issued before the March
outlook, the RBA has cut its official cash rate from
quarter National Accounts showed that growth was
4.75% in September 2011 to 3.5% in June. Markets are
stronger than expected. The Budget indicates that the
pricing in further cuts, with the cash rate expected to fall
Government expects the ‘multi speed’ nature of the
to around 2.5% by the end of the year. Most economists
Australian economy to persist in the coming years, but
think that markets’ expectations for further cuts are
anticipates that the extent of the difference in growth
overstated; in the absence of a 2008-style financial
rates between the mining and non-mining related
panic, the cash rate is unlikely to go below 3%.
sectors of the economy will be reduced somewhat from Figure 8: Market pricing for the RBA cash rate
its current level. It also notes that some non-resources sectors have experienced strong growth and that “even
Per cent 8
within the slower growing sectors there have been the
7
unemployment rate is expected, with the Budget
6
pockets
of
strength”.
A
slight
increase
in
forecasting a 5.5% rate for 2012-13.
5
economy’s
4
performance have been reasonably positive. The
3
More
up-to-date
measures
of
Market pricing
the
Westpac-Melbourne Institute index of economic activity include a ‘coincident index’ that attempts to measure current economic conditions. The index has picked up in 2012 – annualised growth in April was 4.2%, while growth in the index over the year was 3.8%. This suggests that the strong growth recorded in the National
2 1 0 Jun 08
Jun 09
Jun 10
Jun 11
Jun 12
Jun 13
Source: RBA and ASX.
Accounts was not an anomaly, and nor has there been a sharp slowing since the March quarter. The Westpac-MI ‘leading index’ points to an expected slowdown in the second half of 2012.
Real GDP growth Employment growth Unemployment rate Participation rate Inflation (CPI) Wages growth (WPI)
Table 1: Budget forecasts 2011-12 (current year) 3% 0.5% 5.25% 65.25% 1.25% 3.5%
2012-13 3.25% 1.25% 5.5% 65.25% 3.25% 3.75%
Source: Commonwealth Budget 2012-13.
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