Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source

Economic growth slumped by 1.2 per cent in the March quarter. This was the first quarter of negative growth since the financial-crisis-induced fall in the December quarter of 2008 and was the biggest decline since the March quarter of 1991 during the Keating 'recession we had to have'. Annual growth fell to just one per cent. Growth was heavily impacted by the cyclone and floods earlier this year and by the earthquake and also the tsunami in Japan, as I said in my press conference. This reduced production and export of key commodities, particularly coal.

These factors are temporary and of course will unwind through the balance of this year as production and exports recover, but this episode highlights the increasing importance of the mining sector to the Australian economy. It only accounts for 10 per cent of production and two per cent of employment, but it contributes more than half of our exports. This more prominent role of mining is a strength while times are good, but it also increases Australia's exposure to disruptions to the industry and to volatility in offshore markets. The disruptions to production and exports of commodities, particularly coal, from the cyclone and floods led to a plunge in net exports which cut a massive 2.4 percentage points off economic growth in the quarter. This shows clearly that, when the mining industry coughs, Australia catches economic pneumonia.

Thankfully, the international environment generally remains positive for Australia. The terms of trade rose another six per cent and are now at the highest for a century and a half. Business investment is very strong, with investment in machinery and equipment up six per cent and investment in non-dwelling construction up 1.3 per cent. Separate data on business investment shows that much of this strength is actually coming from the mining industry, as I pointed out at the National Press Club. Nevertheless, households remain cautious. They are still spending but at a moderate pace. Spending on retail was relatively flat, but this was partly because households had to spend more on petrol, education and rent. It is no surprise that households have to reduce their spending on the things they want to buy when they have to find money for things they actually need.

Spending on interest payments on mortgages and other household debt rose further, an indication of the impact of the seven increases in interest rates since late 2009, and particularly what the last one did on Melbourne Cup Day, followed by a significant increase by the banks above and beyond the move in the reserve and the impact that had on household budgets. Households are now spending a massive $21 billion on interest every three months to service their debts. Effective interest rates paid on borrowings by households are now higher than they were over the average of the Howard years. The bad news is that interest rate pressures will intensify as this government continues to compete for scarce funds through its ongoing deficit-fuelled spending binge.

Savings by households continue to rise and are around the highest level for several decades. On the one hand that is good but on the other hand it indicates that there is caution in Australian households, and the caution is linked back to the fact that borrowing for housing is increasing at its slowest pace in a generation and prices of houses are softening.

Today's data also highlights the difficulties being faced by the non-mining sectors of the economy, particularly manufacturing, which contracted by 3.1 per cent over the year. This is a struggle under the impact of higher interest rates, but particularly the Australian dollar. The rise in the Australian dollar to the highest level since the currency was floated in December 1983 is hurting trade-exposed industries. It is squeezing those export industries that are not linked to mining. It is also creating issues for import-competing industries such as the motor vehicle industry and business input and consumer goods producers. Both of these factors are heavily influenced by the government's continued heavy borrowing program, with demands on the capital markets of $49 billion this year and a further $23 billion next year.

The data shows that the growth pattern across the country is patchy. The strongest performing state is the Australian Capital Territory, with growth in the quarter of 3.3 per cent. That is not really surprising given that the Labor government is employing more and more public servants here in Canberra. Output dropped in South Australia, the Northern Territory and Queensland—

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