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ANALYSIS OF RESULTS
As part of an ongoing Capital measurement improvement program, there are a number of methodological updates included in this release. Industry and sector estimates of Private GFCF have been revised to better reflect the changing economy. Private GFCF is allocated by industry and sector using data from the Private New Capital Expenditure Survey and the Economic Activity Survey.
The mean asset life for Dwellings was reviewed in consultation with Australian building industry associations and approval authorities. The mean asset life for Private Brick Houses was reduced from 88.6 to 70 years and the mean asset life for Alterations and Additions was reduced from 39 to 25 years. These asset life changes were introduced from 1983-84. Additionally, various assumptions (asset retirement distributions, age-efficiency parameters and mean asset lives) have been modified to align with the Organisation for Economic Co-operation and Development (OECD) international standards. These revisions are most evident in the Household sector estimates of Consumption of fixed capital (COFC) and Net capital stock. The revisions to COFC flow through to other estimates in the national accounts such as Real net national disposable income and Net saving.
The September quarter 2016 issue of Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0), to be released on 7 December 2016, will also incorporate these revisions.
Data from the SU tables are also used to construct Australian National Accounts: Input-Output Tables (cat. no. 5215.0.55.001), which present structural detail underlying the Australian economy and provide weighting patterns for Producer Price Indexes, Australia (cat. no. 6427.0).
The SU tables are not publicly available as they are an internal compilation tool of the Australian System of National Accounts that is used to generate balanced measures of GDP, implement revisions and facilitate construction of Input-Output tables.
OVERVIEW OF AUSTRALIAN ECONOMY IN 2015-16
The Australian economy expanded by 2.8% in chain volume terms in 2015-16, the 25th consecutive year of economic growth. Real net national disposable income increased by 0.1% for the year, largely due to the 10.2% fall in the terms of trade. Labour productivity in the market sector increased 1.5% while the saving ratio fell to 6.8, down from the revised estimate of 8.0 observed in 2014-15.
Exports of goods and services recorded strong growth of 6.7%, contributing 1.3 percentage points to the overall GDP estimate. Domestic final demand also contributed 1.3 percentage points and was driven by increases in Household final consumption expenditure (2.9%), Government final consumption expenditure (3.8%) and Public sector investment (2.1%), while Private investment fell by 5.2%. Private investment in dwellings increased 9.8% for the 2015-16 year, the strongest growth in 13 years. This strength was offset by a 16.5% fall in non-dwelling construction, as engineering construction related to mining continued to decline from the high levels observed over the previous five years.
From an industry perspective, the strong mining investment over the previous five years is reflected in the continued growth in Gross value added (GVA) observed in the industry. Mining GVA increased 6.2% and is now 48% larger than it was in 2010-11. Strong increases were also observed in Financial and insurance services (4.6%), Health care and social assistance (3.9%), and Information, media and telecommunications (6.7%). Manufacturing decreased 2.7%, the fourth consecutive annual decrease for this industry.
Compensation of employees increased by 3.1% and was the largest contributor to growth in the income measure of GDP. Gross mixed income increased 8.0%, while there were increases in Gross Operating Surplus (GOS) for Financial corporations (6.3%), Dwelling owned by households (3.9%) and the General government sector (4.8%). These increases were offset by the large decrease in GOS from the Private non-financial Corporation sector, which fell 4.4%.
The Implicit price deflator for GDP fell 0.4% while the Chain price index fell 0.3%, driven by the falling price of exports (-7.8%) combined with the lower growth in prices for Household consumption (1.4%) and Non-dwelling capital investment (0.9%).
The Net worth of Australia is defined as the difference total assets and total liabilities. In current prices Australia’s Net worth at 30 June 2016 was estimated at $10,798.9 billion, an increase of $175 billion (1.6%) since 30 June 2015.
GROSS DOMESTIC PRODUCT (GDP)
The latest annual result of 2.8% growth in GDP now sees 25 years of consecutive growth in the Australian economy. For some analytical purposes it is important to understand the impact of population growth on movements in GDP. In 2015-16, GDP per capita increased by 1.4%. Growth rates in GDP and GDP per capita are presented in the following graph.
REAL NET NATIONAL DISPOSABLE INCOME (RNNDI)
Another measure of national economic activity is 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. In 2015-16, RNNDI increased by 0.1%, with the Terms of trade decreasing 10.2%.
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.
In 2015-16 the Household saving ratio was 6.8% compared to an increase of 8.0% in the previous year.
In this release, revisions to household COFC due to changes in the Capital stock estimates have resulted in a level shift in household net saving estimates.
EXPENDITURE ON GDP
Total final consumption expenditure increased 3.1% in 2015-16, and contributed 2.3 percentage points to GDP growth.
Household final consumption expenditure (HFCE) increased 2.9% and contributed 1.6 percentage points to GDP growth in 2015-16. The main contributors to HFCE growth were Rent and other dwelling services (2.3%), Food (4.2%), Recreation and culture (4.1%), Insurance and other financial services (4.2%) and Health (4.0%).
Government final consumption expenditure increased 3.8% in 2015-16, contributing 0.7 percentage points to growth in GDP. In recent years, Government final consumption expenditure has contributed between 0.1 and 0.7 percentage points to GDP growth.
Private investment decreased 5.2% in 2015-16, compared to a decrease of 2.4% in 2014-15. Private investment detracted 1.1 percentage points from GDP growth, down from last year's detraction of 0.5 percentage points. This fall was driven by decreased investment in Non-dwelling construction (-16.5%) which detracted 1.3 percentage points from growth in GDP.
Total dwellings investment increased 9.8% and contributed 0.5 percentage points to GDP growth in 2015-16. This is the third consecutive year of growth in total dwelling investment. The increase in 2015-16 was driven by investment in New and used dwellings (up 13.1%).
Public gross fixed capital formation increased 2.1% and contributed 0.1 percentage points to GDP growth in 2015-16. The increase in 2015-16 was driven by General government (+1.6%) and Public corporations (+3.5%).
Growth in the domestic economy as measured by Gross National Expenditure (GNE), which is the total expenditure within a given period by Australian residents on final goods and services, showed an increase in 2015-16 of 1.2%. The difference between GNE and GDP is due to a positive contribution from Net exports and the statistical discrepancy.
In 2015-16 the industries with the largest shares of current price Gross value added (at basic prices) were Financial and insurance services (9.5%), Construction (8.7%), Healthcare and social assistance (7.3%), Professional, scientific and technical services (6.6%) and Manufacturing (6.6%). Mining declined 0.8% to be the sixth largest industry in 2015-16 at 6.4%, down from being the third largest in 2014-15 at 7.2%. The change in the relative importance of Mining reflects steady growth in the majority of services industries in combination with declining market prices for several key mining commodities. In the period since 2005-06 the industry share of GVA for Manufacturing decreased from 10.8% to 6.6%. In the same period the strongest growth has come from Construction (from 7.3% to 8.7%), Healthcare and social assistance (from 5.9% to 7.3%) and Financial and insurance services (from 8.2% to 9.5%).
INCOME FROM GDP
The Compensation of employees (COE) share of Total factor income in 2015-16 reported a slight rise to 54.2%, from 53.8% in 2014-15.
The profits share (based on Gross operating surplus (GOS) for Financial and Non-financial corporations) of Total factor income was 24.5% in 2015-16, down from 25.5% in 2014-15. After peaking in 2008-09 at 28.8%, the profits share of total factor income has been steadily falling. A major contributor to the fall in profits share of total factor income has been mining GOS which has been impacted by the fall in Terms of trade. The profit share of total factor income 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.
In 2015-16, National net saving relative to Net disposable income (Gross disposable income less Consumption of fixed capital) was 4.3%. The last year this series was below 5.0% was in 1994-95.
In 2015-16, Financial corporations net saving was $37.5 billion, General government net saving was -$25.7 billion and Household net saving was $69.7 billion. Net saving for Non-financial corporations was -$24.0 billion, the first negative net saving estimate for non-financial corporations since 1990-91.
When analysing household saving it is useful to consider Household net worth, currently at $8,841.6 billion as of 30 June 2016. For more information please refer to Balance Sheets.
PRICES IN THE NATIONAL ACCOUNTS
Chain Price Indexes are used to measure price changes. The annual movement in the Domestic final demand (DFD) chain price index for 2015-16 was 1.7%. The major components were Household final consumption expenditure (up 1.4%) and Gross fixed capital formation (up 1.9%). Growth in the GDP chain price index for 2015-16 was -0.3%, with the price of Exports of goods and services decreasing 7.8% and the price of Imports of goods and services increasing 2.5%.
On an hours worked basis, market sector multifactor productivity (MFP) grew 0.9% in 2015-16 reflecting a 2.4% increase in gross value added and a 1.5% increase in total labour and capital inputs. Capital services grew 2.3% and hours worked grew 0.9%. On a quality adjusted hours worked basis, MFP rose 0.6%. The weaker growth in quality adjusted MFP reflects a positive contribution from changes to labour composition, due to educational attainment and work experience.
In 2015-16, labour productivity grew 1.5% on an hours worked basis. On a quality adjusted hours worked basis, labour productivity grew 1.0%.
Market Sector Productivity, Hours worked basis, percent change
Productivity Growth Cycles
A common method of examining changes in productivity over an extended period involves identifying and dividing the data into productivity ‘growth cycles’ (see Glossary). For the 1998-99 to 2003-04 cycle, MFP in the market sector grew 1.1% per year on average. Gross value added grew 3.6% per year over the same period while total inputs grew 2.5% per year. For the 2003-04 to 2007-08 cycle, MFP declined 0.4% per year on average. While gross value added grew 3.7% per year, total inputs growth was stronger at 4.1% per year.
For both productivity growth cycles combined (1998-99 to 2007-08), MFP growth averaged 0.4% per year.
Australia's net worth at the end of June 2016 was $10,798.9 billion, an increase of $174.8 billion (1.6%) since 30 June 2015. Major contributions to this movement came from land, increasing $258.1 billion, securities other than shares, increasing $95.0 billion and non-dwelling construction increasing $88.1b. These increases to net worth were partially offset by a $129.0 billion decrease in mineral and energy resources and $120.3 billion increase in liabilities of securities other than shares. At the total level, neutral holding gains, net capital formation and other changes in volume contributed $183.7b, $121.6 billion and $106.7 billion respectively to the change in net worth. Real holding gains and financial transactions detracted $160.7 billion and $76.4 billion from the change in net worth.
Australia's net international investment position as at 30 June 2016 was a net foreign liability of $1035.9 billion, up $142.9 billion (16.0%) on the position a year earlier.
Australia's real net worth rose 0.8% over the year ended 30 June 2016, down from the 2.5% growth over the previous year.
Balance sheets are produced in current prices for each institutional sector of the economy. Amongst these, the household sector had the highest net worth at $8,841.6 billion at 30 June 2016, an increase of $403.2 billion (4.8%) from the previous year.
INVESTMENT AT CURRENT PRICES
Investment represents about a quarter of the level of 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 1970s and was reasonably stable through the 1990s. Investment by Non-financial corporations as a proportion of GDP started growing during the 2000s before peaking in 2012-13 at 16.9%. In 2015-16, investment by Non-financial corporations as a proportion of GDP has fallen to 12.4%.
Household investment (including dwellings owned by persons) as a proportion of GDP declined steadily between 1959-60 and 1974-75 then remained steady at around 10% of GDP until the mid 2000s where it consistently fell below 10% as overall growth in GDP outpaced growth in household investment. Since 2012-13 investment by households as a proportion of GDP has increased and in 2015-16 was 9.2%.
General government investment as a proportion of GDP was at its highest in the late 1960s and has trended down since then. It was 3.3% of GDP in 2015-16.
The highest ever level of Financial corporations investment, expressed as a proportion of GDP, was recorded in 1988-89 and 1989-90 (2.0%). It has generally fallen since then and was 0.7% of GDP in 2015-16.
In terms of the different asset types, in 2015-16, Private non-dwelling construction represented the largest percentage share at 26.0% of Total gross fixed capital formation, compared to the next largest, Private dwellings investment at 23.0%.
Over the past ten years, as a share of Total gross fixed capital formation, Non-dwelling construction has increased in both the private and public sectors. Since 2005-06, Private non-dwelling construction has increased from 19.7% to 26.0% of Total gross fixed capital formation.
At the industry level Mining increased its share of investment from 12.0% of Total gross fixed capital formation in 2005-06 to 18.0% in 2015-16. Meanwhile, Manufacturing's share of investment decreased from 8.5% to 3.7% of Total gross fixed capital formation over the same period.
The 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 2015-16 the Exports ratio was 18.9% and the Imports ratio was 21.1%.
Since 2004-05 volumes of Imports have grown more strongly, up 69.4%, compared to 58.9% growth in volume of Exports.
Prices received for Exports again fell sharply, down 8.0%, while the prices paid for Imports rose 2.4%.
Since 2004-05 Export prices have grown 17.9% and Import prices have grown 7.5%. In 2015-16 the Terms of trade decreased by 10.2%, following on from a decrease of 10.5% in 2014-15. This is the fourth consecutive annual decrease in the Terms of trade.
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. In 2015-16, Exports were up 6.7% while Imports fell 0.3% in volume terms. Net exports contributed 1.4 percentage points to GDP growth.
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 2015-16 was -4.4%, down from -3.7% in 2014-15.
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