Mining has become the biggest driver of the Australian economy. The gross value added of the Mining sector was $139.95 billion in 2011/12, ahead of Financial & Insurance services at $137.55 billion.
- Mining recorded the biggest increase in value added in 2011/12, up 6.7 per cent, ahead of agriculture, up 6.3 per cent.
- The Bureau of Statistics has released other detailed estimates on the economy’s performance in 2011/12. The net worth (wealth) of Australia – total assets less liabilities – stood at $8,367.7 billion as at June 30 2012, up by 2.4 per cent over the year in real terms (up 1.3 per cent , nominal) after a 2.6 per cent increase in 2011/12.
- The value of all Australian homes hit a record $1,599.9 billion at June 30, up 2.7 per cent over the year.
Labour productivity in the market sector fell by 0.3 per cent in 2010/11 after a strong 2.7 per cent increase the previous year. Productivity was best in agriculture (up 15.2 per cent) while it was worst in mining (down 16.4 per cent).
What does it all mean?
- The annual National Accounts data has certainly provided a treasure trove of information on the domestic economy. And while it may not be market moving data it will certainly help policymakers garner a clearer picture of the current economic landscape.
- The latest data has quantified the dependence of the economy on the mining sector. Over 2011/12 the mining sector became the biggest driver of the Australian economy surpassing the Financial & Insurance sector.
- In fact it was the mining sector that recorded the biggest increase in value, adding 6.7 per cent in 2011/12. And whichever way you cut it, the mining sector looks set to play an important role in the economic recovery. The result also confirms the disparity in growth across the states truly highlights the multi-speed nature of the economy.
- In recent times the Reserve Bank has admitted that the mining investment boom may peak earlier than previously anticipated. However the main driver of the mining growth story over the next decade is going to be the volume boom that comes with more producing assets and larger capacity.
- The Reserve Bank would be more disappointed with the weakness in labour productivity over the past year. Productivity has been discussed by policymakers on numerous occasions in the past year. The terms of trade has peaked and any growth in real wages over the mid-term needs to be as a result of a pickup in productivity. Otherwise it is likely to fuel inflation. Interestingly the mining sector has been the least productive over the past year – largely due to the strong hiring in the sector and the time it takes to embed a relative new labour force. And more importantly, given lower commodity prices and high costs of production it is likely that the mining sector will become more productive over the coming year.
- In recent weeks there have been signs of an improvement taking place in the global economy. However the Reserve Bank is likely to remain focussed on the downside risks to the global economy. No doubt the ongoing patchiness across the domestic economy and cautiousness being shown by consumers and businesses will continue to ensure that the Reserve Bank remains on an easing bias.
- In addition given that the terms of trade index has peaked, it has ensured that there is additional capacity in the economy to allow the household sector more breathing space. As such CommSec expects the Reserve Bank to cut interest rates by a quarter of one per cent next week.
What do the figures show?
- Mining has become the biggest driver of the Australian economy. The gross value added of the Mining sector was $139.95 billion in 2011/12, ahead of Financial & Insurance services at $137.55 billion. Mining recorded the biggest increase in value added in 2011/12, up 6.7 per cent, ahead of agriculture, up 6.3 per cent.
- The net worth (wealth) of Australia amounted to a record $8,367.7 billion at 30 June, up 2.4 per cent in real terms after a 2.6 per cent gain in 2011/12. In volume terms net worth was a record $8486.1 billion.
- Household wealth stood at $6,373.4 billion in 2011/12, down 2.3 per cent in nominal terms. The net worth of Australian businesses (non-financial) hit a record high of $691.6 billion at June 30.
- The value of all Australian homes stood at a record $1,599.9 billion at June 30, up 2.7 per cent over the year.
National net saving rose from $126.3 billion (9.0 per cent of GDP) to $144.3 billion (9.8 per cent of GDP) in 2011/12. - Labour productivity rose by 2.9 per cent in 2011/12 after rising by 0.2 per cent the previous year. Capital productivity fell by 3.0 per cent in 2011/12, after a 2.4 per cent fall the previous year. In the market sector, multi-factor productivity rose by 0.3 per cent in 2011/12 after a 0.9 per cent fall the previous year.
- Labour Productivity was strongest in agriculture (up 11.1 per cent) followed by wholesale trade (up 7.6 per cent). Productivity fell the most in mining (down 12.1 per cent) followed by electricity, gas, water and waste services (down 3.7 per cent).
What is the importance of the economic data?
- The Australian Bureau of Statistics releases the Australian System of National Accounts publication each year. The data includes the national balance sheet, estimates of productivity and a comprehensive assessment of Australia’s performance over the last financial year.
What are the implications for interest rates and investors?
- The mixed nature of current economic conditions is clear from the latest National Accounts data. Northern Territory, Western Australia and Queensland are benefitting from the mining boom. But other states are struggling.
- At present there are downside risks to domestic growth, however the longer term story is sound. An improvement in business conditions is the key to businesses committing to investment plans, which in turn will drive activity levels once the recovery becomes more entrenched. But the Reserve Bank will need to do its part by keeping interest rates in a stimulatory setting over the near term. In addition, productivity still remains an issue, with further ongoing improvement needed. We continue to pencil in a further rate cut in next week.
