ANALYSIS OF RESULTS

THE 2016-17 SUPPLY AND USE TABLES

The ABS compiles supply and use (SU) tables to generate balanced annual estimates of Gross Domestic Product (GDP). The SU tables are compiled from 1994-95 to 2016-17 and result in the annual statistical discrepancies for this period being zero. Years prior to 1994-95 have a non-zero statistical discrepancy because SU tables have not been compiled, and so the data remain unbalanced. Similarly, estimates for the latest year (in this case 2017-18) have a statistical discrepancy because SU tables have not yet been constructed.

The supply table measures the goods and services produced in Australia and imports, while the use table measures the use of goods and services for intermediate consumption, final consumption, gross fixed capital formation, changes in inventories and exports. Domestic supply and intermediate consumption are cross-classified by industry and product categories, while the other components are simply classified by product category. The use table also provides information on the generation of income from production for each industry.

A large number of data sources are used to compile the national accounts, such as business activity surveys, household expenditure surveys, investment surveys, foreign trade statistics and government finance statistics. In order to reflect changes in methods, concepts, classifications and data source, this release of the Australian System of National Accounts (ASNA) incorporates the following key revisions:

• Industry estimates of Gross value added (GVA) and Gross operating surplus (GOS) were revised back to 2014-15 as a result of updated input data from Australian Industry, 2016-17 (cat. no. 8155.0).
• Household final consumption expenditure on insurance and other financial services were revised back to 2014-15 to incorporate revised source data provided by the Australian Prudential Regulation Authority (APRA) and Australian Gambling Statistics.
• Government final consumption expenditure was revised back to 1998-99 to include revised reporting of government finance data and the reclassification of government revenue items related to Australian Securities and Investments Commission (ASIC) corporation fees and APRA financial institutions supervisory levies.
• Private gross fixed capital formation (GFCF) was revised back to 2003-04 for dwellings to update the under-coverage factor for alterations and additions that are out of the scope of from the Building Activity Survey. In addition, updated source data from the Building Activity Survey, Engineering Construction Survey and Survey of New Capital Expenditure contributed to revisions to Private GFCF from 2014-15 onwards.
• Public GFCF was revised back to 2014-15 driven by the inclusion of audited annual data provided by State and Commonwealth Treasuries, which is considered more reliable than the data available on a quarterly basis. Updated source data from the Survey of Research and Development also contributed to revisions to Public GFCF.

The September quarter 2018 issue of Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0), to be released on 5 December 2018, will also incorporate these revisions.

Data from the SU tables are 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. These tables will be made available to the public for the first time on 12 December 2018. Details of the supply and use framework and the structure of the tables that will be published are provided in the Information Paper: Australian National Accounts: Supply Use Tables (cat. no. 5204.0.55.014).


OVERVIEW OF AUSTRALIAN ECONOMY IN 2017-18

The Australian economy expanded by 2.8% in chain volume terms in 2017-18, the 27th consecutive year of economic growth. Real net national disposable income grew 2.8%. The terms of trade increased 1.9% in 2017-18 following an increase of 14.3% in the previous year. Labour productivity in the market sector increased 0.4% while the household saving ratio fell to 3.5%.

Economic growth was driven by domestic final demand, which contributed 3.4 percentage points to growth while net trade in goods and services detracted 0.7 percentage points. Household final consumption expenditure (2.9%) contributed 1.6 percentage points. Strength in household final consumption expenditure was driven by both discretionary and essential consumption with increased spending in rent and other dwelling services, food, recreation and culture, insurance and other financial services, and hotels cafes and restaurants. Household spending on electricity, gas and other fuels decreased for the first time since 2013-14. Private business investment contributed 1.0 percentage point. Private business investment increased 8.5% following four consecutive falls with a rebound in non-dwelling construction (11.9%) driven by investment in renewable energy projects.

Mining value added continued to expand, recording its 14th consecutive annual rise. Most of the expansion in Mining came from Oil and Gas Extraction, reflecting new capacity coming online. The Heavy and Civil Engineering Construction industry recorded strong growth of 16.2% reflecting increased private and public investment in new engineering construction. Strong public expenditure in the health sector has translated to continued expansion in the Health Care and Social Assistance industry as it recorded its strongest growth since 2008-09. Service-based industries also contributed to growth, highlighting the economy's transition to service delivery.

All income components of GDP recorded growth with the exception of public non-financial corporation gross operating surplus. Strong wage growth resulted in compensation of employees rising 4.5%, the strongest annual rise since 2011-12. Wage growth was evident in the Health Care and Social Assistance industry from both private and public sectors. This was largely driven by new hospitals coming online following government investment in previous years.

The chain price indexes for GDP and domestic final demand increased 1.9% and 1.4% respectively in 2017-18. The gap in price movements is reflected in the changes to the terms of trade.

During 2017-18, National net borrowing was $54.2 billion, driven by the issuance of shares and other equity by private non-financial sector reflecting strong foreign investment in Australian corporations.


AUSTRALIAN ECONOMY GROWS BY 2.8%

Australian Gross Domestic Product (GDP) grew by 2.8% in 2017-18. This represents a 0.1 percentage point downward revision from the annualised 2017-18 GDP estimates published in the June quarter 2018 national accounts. GDP per capita increased 1.2% as the Australian population grew by 1.6%.




DOMESTIC FINAL DEMAND DRIVES ECONOMIC GROWTH IN 2017-18

Economic growth in 2017-18 was largely driven by domestic final demand. Household consumption contributed 1.6pp while government consumption contributed 0.7 percentage points to GDP growth. Gross fixed capital formation contributed 1.0 percentage point. Net exports detracted from GDP growth in 2017-18, with imports of goods and services detracting 1.4 percentage points and partially offset by exports of goods and services which contributed 0.7 percentage points to GDP growth.



HOUSEHOLD CONSUMPTION GROWTH STRONGEST IN 6 YEARS

Household final consumption expenditure recorded growth of 2.9% in chain volume terms in 2017-18, reflecting growth in both discretionary and essential consumption.



PRIVATE BUSINESS INVESTMENT RISES FOR FIRST TIME IN 5 YEARS

Private business investment recorded a 8.5% increase in 2017-18.

Non-mining investment grew at 13.5% in 2017-18, driven by investment in machinery and equipment and renewable energy projects.

Mining investment declined for a 5th consecutive year, however the rate of decline has moderated with a fall of 4.1% recorded for 2017-18.

Investment in dwellings remains at an elevated level, reflecting continued residential construction activity in both detached and attached dwellings.



MINING CONTINUES TO GROW AS GAS PRODUCTION INCREASES

The Australian economy has changed dramatically over the past 20 years as reflected by changes in contribution to gross value added.

In 2017-18 the industries with the largest share of current price gross value added (at basic prices) were Financial and Insurance Services (9.5%), Mining (8.8%) and Construction (8.1%).

Mining recorded a growth of 2.9% in 2017-18 (2.9%) driven by Oil and Gas Extraction. Growth in Oil and Gas Extraction was due to large projects entering production phase during the year.

Health Care and Social Assistance rose 6.3% in 2017-18 resulting in it becoming the fourth largest industry. Growth in 2017-18 reflects strong public expenditure in the health industry, recording its strongest growth since 2008-09.

Strong private and public investment was reflected in the growth of value added of the Construction industry (5.1%) with Heavy and Civil Engineering Construction recording a strong rise of 16.2%.



COMPENSATION OF EMPLOYEES SHARE OF TOTAL FACTOR INCOME FALLS

In 2017-18 compensation of employees (COE) share of total factor income fell to 52.4%, recording its lowest level in seven years. This share is still higher than the lowest level recorded but lower than the 10 year average of 53.0%.

In 2017-18 the profit's share (based on gross operating surplus for corporations) of total factor income was 27.6%. This is the highest level since 2011-12, but is still below the peak of 29.0% seen in 2008-09.

A major contributor to this rise in profit share of total factor income was Mining which was impacted by the continued strength in the terms of trade. 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.




CHANGES TO INDUSTRY COMPENSATION OF EMPLOYEES OVER TIME

Industry shares of total COE changed significantly for some industries between 1997-98 to 2017-18. Over these two periods, the share of COE for the Health Care and Social Assistance, Professional, Scientific and Technical Services, and Construction industries increased in 2017-18 compared to 1997-98. This is contrary to the Manufacturing, and Finance and Insurance Services industries, where the shares of COE fell.

These changing patterns of industry shares of COE at these two points in time are also reflective of each industry's contribution to total employment.


HOUSEHOLD SAVING RATIO DECLINES

The household saving ratio is another key aggregate in the national accounts. While household saving is not measured directly, it is calculated by deducting household final consumption expenditure from household net disposable income.

The household saving ratio continued to fall in 2017-18, recording 3.5%, its lowest level in nine years. The fall in net saving as a proportion of net disposable income can be attributed to strength in household final consumption expenditure coupled with growth in income tax payable by households.


GDP CHAIN PRICE INDEX GROWTH DRIVEN BY STRONG CAPITAL INVESTMENT COSTS

The GDP chain price index increased 1.9% in 2017-18. While not as strong as 2016-17, rises in coal and LNG prices were again significant contributors to the increase in export prices through 2017-18. Strong demand and rising input costs drove increases in capital investment costs, while rising fuel and utility prices drove household consumption prices.



MARKET SECTOR MULTIFACTOR PRODUCTIVITY INCREASES

Market sector multifactor productivity (MFP) grew 0.5% in 2017-18. This result reflects a 2.7% increase in gross value added and a 2.2% increase in combined inputs of labour and capital services. On a quality adjusted hours worked basis, MFP rose 0.2%, reflecting changes in labour composition.

On an hours worked basis, labour productivity grew 0.4%, reflecting the strengthening growth in hours worked of 2.4%. On a quality adjusted hours worked basis, labour productivity fell 0.2%.



LOW INTEREST RATES ENTICE HOUSEHOLDS TO INVEST IN DWELLINGS AND LAND

Interest rates have been at historically low levels for a number of years, which has reduced the pressure on households in terms of the proportion of income spent on paying interest on mortgages. Interest on dwellings accounted for 3.6% of total household gross income in 2017-18, compared to 6.0% in 2007-08. This has encouraged households to expand their balance sheets through investment in land and dwellings. Household net worth grew $343 billion, or 3.4%, through 2017-18.

Households borrowed an additional $981 billion over the 10 year period from 2007-08, while the value of land and dwellings increased by $2,957 billion over the same period. Growth in land and dwellings owned by household has slowed from an increase of $720 billion annually in 2016-17 to an increase of $131 billion in 2017-18. This was driven by slow growth in the value of land, while growth in dwelling stock remained steady.

In 1988-89, the value of land and dwellings held by households was 5.1 times the value of household borrowing. By 2007-08 this ratio was at 3.2, and it has remained relatively stable since. In 2017-18, land and dwellings owned by household covered their borrowing 3.1 times. The value of loans carried on the household balance sheet in 2017-18 are now 14.1 times higher than at 1988-89, whereas the value of land and dwellings is 8.5 times higher. While a lower share of household income is spent on mortgage interest than around the time of the Global Financial Crisis, the gap between the value of land and dwellings held by the household sector and the level of household borrowing is narrowing over time.



HOUSEHOLD INCOME AND WEALTH

Household gross disposable income plus other changes in real net wealth decreased $634 billion, or 33.3%, in 2017-18. This was largely due to a $636 billion decline in the value of land held by households.

Living standards and economic well-being are supported by wealth as well as income. The growth rate of gross disposable income has slowed in recent years. However, households reap gains and incur losses from holding assets, such as land, dwellings, equities and accumulated saving, which also bears on consumption patterns.