The National Accounts show Australia’s economy grew by a better-than-expected 1.1 per cent in the March quarter.

Over the year to March, the Bureau of Statistics figures show the economy also outperformed expectations, growing by 3.5 per cent.

It is the best annual growth rate Australia has recorded in almost two years, since the June quarter 2012.

Economist forecasts had centred on quarterly GDP growth of 0.9 per cent, and annual growth of 3.2 per cent, although the 29 predictions varied between 2.8 and 3.6 per cent.

The main driver of the economy was mining, which accounted for around 80 per cent of growth in the quarter.

In particular, it was surging commodity exports driving that sector due to the combination of a ramp up in output and a less severe cyclone season than is usually experienced in northern Australia, meaning less disruption to production and shipments.

As flagged yesterday, net exports more than accounted for all the growth in the quarter, adding 1.4 percentage points to the 1.1 per cent economic growth.

While commodity exports did the heavy lifting, household consumption also added 0.3 percentage points to the economy’s expansion and dwelling investment added 0.2 percentage points.

These gains were partially offset by a 0.6 percentage point deduction caused by a fall in inventories held by businesses, and a 0.2 percentage point fall in public investment.

While GDP jumped more than most expected, a 1.2 per cent decline in the terms of trade – which measures the prices Australia gets for its exports against those it pays for imports – cut the rise in real national income to a more modest 0.8 per cent.

Questions over future growth

CommSec’s chief economist Craig James has lauded the figures, pointing out that Australia is now in its 23rd consecutive year of economic growth.

“The latest data serves as a wake-up call. Despite some perceptions to the contrary, the Australian economy is doing well. In fact it’s doing very well,” he said.

“The economy is growing comfortably above its trend or ‘normal’ pace; inflation is under control; interest rates are at historic lows; productivity is solid; and home construction and exports are leading the way forward.”

That was a message echoed by the Treasurer Joe Hockey, who pointed to this data and the creation of over 100,000 jobs since the start of the year as evidence that the Government’s policies have been good for the economy.

“Don’t forget this quarter of data covers the first three months of the year when on the back of decisions by the Government in relation to the car industry Qantas and SPC Ardmona, our political opponents were warning of the end of times and significant job losses,” he told reporters at a press conference in Canberra.

Mr Hockey rejected suggestions that the stronger-than-expected economic growth figures meant some of the budget’s sending cuts may be unnecessarily severe.

“Australia continues to face challenges from the winding down of mining investment, falling commodity prices and the ageing of the population, but we can be cautiously optimistic that the necessary economic adjustments are beginning to take place,” he cautioned.

“However, we cannot rest in our efforts to drive growth and jobs. So our budget delivers on our economic action strategy and it’s important that we get the chance to implement that strategy in full.”

Many economists warn, though, that this economic strength is likely to fade, in no small part due to the effect of the budget, or public perceptions of it, on consumer spending.

“There’s a risk that the budget might impact household consumption. If all the planned measures get through the Senate, there might be a drag on consumption,” NAB senior economist Spiros Papadopoulos told Reuters.

“We also think business investment growth will be more negative in coming quarters after it has held up quite well in the first quarter.”