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1360.0 - Measuring Australia's Economy, 2003  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 03/02/2003   
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Contents >> Section 1. Measuring Economic Activity

Introduction

A large amount of the information published by the ABS relates to economic activity. For example, the ABS publishes measures of retail trade, the number of persons employed, and merchandise trade. These measures are known as economic indicators, which can be thought of as economic variables which change in a predictable way in relation to overall economic activity. Economic analysts use indicators along with other information to help explain what is happening in the economy and then use this knowledge to try to predict future events.

The economic information published by the ABS is obtained mainly from surveys conducted by the ABS or as a by-product of administrative activities. For example, information on retail turnover is collected from a survey of retail businesses, information on the number of people employed is collected from a household labour force survey, and information on merchandise trade is compiled from data provided to the ABS by the Australian Customs Service.

What the National Accounts measure

There is a wide range of data series available to anyone who wishes to analyse the performance of various components of the economy over time. For example, we could look at the number of houses being built, the number of cars produced, whether employment is rising or falling, the composition of exports and so on.

While these and the many other economic statistics produced by the ABS and other organisations are important in their own right, it is obvious that none of them in isolation can provide a complete picture of the state of the economy. The national accounts provide a framework within which data about particular aspects of the economy can be combined and presented to show the overall economic position of the nation.

In addition, the accounts provide details of the contributions of different types of economic activity to the economy as a whole. For example, we can see from the national accounts how much of our national income is derived from exports, or how much of the national production is contributed by the manufacturing sector.

The national accounts are organised in the form of a sequence of integrated accounts that show the essential elements of the Australian economy: production, income, consumption, the accumulation of assets (both financial and non-financial) and wealth.

Many of the key national accounts aggregates are affected by both changes in prices as well as by changes in underlying quantities. For these aggregates, analysts often prefer to see estimates that exclude the direct effects of changes in prices. The ABS provides such estimates - in its national accounts and other economic statistics - in the form of chain volume measures.

The national accounts provide vital information for a range of important purposes. The conventions which are followed in compiling them are fully articulated in internationally accepted standards. They have been developed and refined in the course of the past half-century by experts in the field of economic accounting.

Gross Domestic Product (GDP)

A key measure provided in the national accounts is gross domestic product, or GDP. GDP may be defined as the unduplicated value of production that occurs in Australia during a particular period. It is unduplicated in the sense that the value of goods and services used up in the production process is deducted from the value of output in the calculation of GDP. GDP can also be measured in terms of the income generated by production, or in terms of 'final' expenditures on outputs produced. The term gross in GDP indicates that no deduction has been made for the consumption of fixed capital (also known as depreciation); in other words, the gradual using up of fixed assets (e.g buildings, machinery and equipment) through wear and tear is not accounted for when measuring GDP.

GDP and Well-being

It is important to recognise that the 'performance' of the economy, as represented in national accounting measures such as GDP, is not an end in itself. While movements in GDP in chain volume terms are an important measure of economic growth, they do not provide a comprehensive measure of the well-being of a country’s citizens. For example, changes in the levels of pollution and changes in social structures - both of which affect well-being - are not accounted for in GDP.

There are significant aspects of the 'quality of life' which cannot be comprehensively measured in a system of national accounts, and the national accounts were never designed to provide such measures. There are many questions that cannot be answered by any system that relies predominantly on using monetary values as its measuring yardstick. However, the system of national accounts provides a structure which can be, and has been, adapted and extended to facilitate the examination of linkages between various economic and social and environmental policy issues.

Readers who wish to gain an appreciation of statistics relating to the wider notion of well-being are referred to Measuring Australia's Progress (1370.0). This publication brings together social, environmental and economic indicators.


The Australian Economy

National Accounts

During 2001-02 the value of goods and services produced by the Australian economy (gross domestic product or GDP) was $716b. This amount is equivalent to production of about $36,700 per person.

In chain volume terms (i.e., after allowing for changes in prices) Australia's GDP increased by 3.8% in 2001-02 compared with 2000-01. This continued the strong growth rates since 1992-93, during which time the average annual growth rate was 4%. Growth rates have been above 3.5% for every year during this period, apart from 2000-01 when the growth rate fell to 2%


The industry making the most significant contribution to production in 2001-02 was property and business services (11%), closely followed by manufacturing (11%) . The next most significant industry was "ownership of dwellings" (9%), which is the industry that provides dwelling services. Most dwellings are owned by those occupying them, and the value of the production of the dwelling services they produce for themselves has to be imputed.

Australia's gross disposable income in 2001-02 was $695b. (The difference between this amount and GDP mainly reflects net income and current transfers payable to non-residents.) Of this, $560b was spent on final consumption expenditure. After allowing for consumption of fixed capital (depreciation) of $112b, this left net saving of $24b (or 3.5% of gross disposable income). During the last 10 years the proportion of gross disposable income saved ranged from a low of -0.2% in 1991-92 to a high of 3.8% in 1997-98, and 1999-2000.



Of the final consumption expenditures in 2001-02, 24% was incurred by governments, with the remaining 76% incurred by households. The most significant components of the latter were rent (18%), which includes the imputed rent paid by owner-occupiers to themselves, recreation and culture (12%), and food (11%)

During 2001-02 the value of new investment in fixed assets was $156b, or 22% of GDP. As this amount exceeded the combined total of net saving and depreciation, this meant that Australia was a net borrower from the rest of the world. The net amount borrowed during 2001-02 was $21b. Throughout the last 10 years, the proportion of GDP represented by new investment in fixed assets was generally in the range 22-24%.

Australia's balance of payments records transactions between Australia and the rest of the world. The current account deficit during 2001-02 was $22b, or 3.1% of GDP. This deficit is mostly due to an excess of $2b in imports of goods and services over exports and net income payable to non-residents of $20b. During the last 10 years the current account deficit as a percentage of GDP fluctuated, with a high of 6.0% in 1994-95 and a low of 2.7% in 2000-01. Both exports and imports became increasingly more important to the Australian economy during this period. When expressed as a percentage of GDP, exports rose from 17% in 1991-92 to 21% in 2001-02, while over the same period imports rose from 17% to 22%. Australia's terms of trade - which reflects changes in the prices of exports relative to those for imports - improved by 2.6% in 2001-02 which is the third consecutive year of improvement.




There was a small surplus ($1b) on Australia's balance of payments capital account for 2001-02. Overall, for 2001-02 the balance on current and capital accounts was a deficit of $21b, which is equivalent to Australia's net borrowing requirement mentioned previously.

At 30 June 2002, Australia's net worth (assets less liabilities) was $2,934b, an increase of $199b on the position one year earlier. Of the increase, $24b was attributable to net saving, with the remainder due mainly to the revaluation of assets and liabilities to take account of price changes. As the value of Australia's net worth at 30 June 2002 was less than the value of its non-financial assets ($3,325b), this meant that Australia had net liabilities to non-residents ($391b). Australia's net foreign debt, which is a component of its net liabilities to non-residents, was $318b at 30 June 2002, an increase of $20b during the year.


The Consumer Price Index

The consumer price index (CPI), a measure of inflation, increased by 2.9% in 2001-02 compared with 2000-01. Over the same period, the GDP chain price index - which provides a broader measure of inflation than the CPI - increased by 2.5%. In 2000-01, the CPI was directly affected by the introduction of a goods and services tax, which replaced wholesale sales tax and some state and territory taxes. Hence the annual growth rate of 6.0% in 2000-01. From 1991-92 to 2001-02 the average annual rate of change in the CPI was 2.4%.



Labour force

In annual average terms, growth in employment during 2001-2002 was 1.9%, compared with 1.0% in the previous year and 2.9% in 1999-2000. Recent employment growth is well below that in 1994-95, when employment rose by 4.8%. The average unemployment rate for 2001-2002 was 6.6%, 0.2 percentage points higher than the rate for the previous year. During the 1990s, the unemployment rate peaked at 10.7% in 1992-93, and after this it generally declined. Average weekly ordinary time earnings for full-time adults during 2001-2002 was $853.60, an increase of 5.5% on the comparable figure for the previous year. Movements in average weekly earnings can be affected by both changes in the level of earnings per employee and changes in the composition of the labour force. On the other hand, the wage cost index measures changes in the "price" of a fixed basket of jobs, priced to constant quality. The price of labour, as measured by the wage cost index, increased by 3.1% during 2001-02.


The average 'all ordinaries' stock market index for June 2002 was 3,241.5, a decrease of 3.3% on the average for the same month a year earlier. At 30 June 2002 the Australian dollar was worth 0.5648 United States dollars, an increase of 11% on a year earlier. The trade weighted index increased from 49.8 to 53.4 during 2001-02.

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