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Today’s economy: rebounding but hurt by inflation, skills shortages and declining real wages

Today’s National Accounts reflect an economy rebounding from the disruption of the pandemic but held back by capacity constraints, skills shortages, and declining real wages.

While the headline figures are encouraging, the details confirm the pressures that are being felt by Australian households and that are weighing on our supply chains.

In the two months since the end of the June quarter, we’ve seen a deteriorating global growth outlook, continuing labour shortages, and rising interest rates which are straining businesses and households and creating headwinds for our economy over the year ahead.

Real GDP increased by 0.9 per cent for the June quarter and was 3.6 per cent higher over the year to June.

This result is due to solid growth in household spending and exports.

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Consumption increased by 2.2 per cent contributing 1.1 percentage points to real GDP growth, as spending on services continued to rebound following the disruption of the pandemic.

Exports recovered and imports slowed, resulting in a solid contribution of 1.0 percentage point to real GDP growth from net exports.

Mining and agriculture picked up as severe weather conditions passed, and energy exporters responded to the strong global demand for energy in the wake of disruptions to Russian gas supplies to Europe.

Services exports also grew on the back of more tourists and students arriving back in Australia, but tourism and in-person education exports remain low, at around one quarter and one-half their pre-pandemic levels.

While commodity prices strengthened in response to strong global demand for energy and pushed our terms of trade to a record high, we don’t expect this strength to continue.

This temporary boost saw nominal GDP increase by 4.3 per cent over the quarter to be 12.1 per cent higher over the year.

As I outlined in the July Ministerial Statement to Parliament, we cannot bank on these high commodity prices persisting. Commodity prices for some of our key exports have already come off their peaks, with iron ore spot prices down 19 percent since the end of the June quarter.

The impacts of acute labour and skills shortages and supply chain disruptions continue to be felt across the country, as evidenced by lower building and construction investment over the quarter.

Dwelling investment fell by 2.9 per cent in the June quarter to be 4.6 per cent lower over the year.

This was a surprisingly weak outcome given the large pipeline of work in the sector and reflects ongoing labour and supply chain pressures with some businesses in the sector under considerable financial strain from high inflation in input costs.

New engineering construction fell 3.4 per cent in the June quarter to be 6.6 per cent lower over the year, constrained by restricted access to labour and materials.

There was further evidence in the National Accounts of the significant cost-of-living pressures impacting many Australian households.

While there are signs that wages are starting to pick up, the national accounts measure of average earnings increased by less than the Consumer Price Index over the year to June, indicating falling real wages.

Real household disposable income fell for the third consecutive quarter, by 0.5 per cent in the June quarter.

While our economy is being buffeted by global pressures and domestic constraints right now, Australians can be confident that better times lie ahead.

Our economic plan is focused on steering the economy through these difficult economic circumstances, by delivering responsible cost of living relief and building a stronger, more resilient economy.

We are working hard to deliver on our commitments to boost the capacity of our economy through more investments in skills and education, cleaner and cheaper energy, and advanced manufacturing and to ease cost-of-living pressures through cheaper childcare and medicines.

Ten years of wasted opportunities have made our economy more vulnerable to global and domestic shocks and the task of the Budget is to start making our economy more resilient.

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