The Australian Industry Group has responded to news of a slowdown in GDP as “disappointing but not unexpected”, adding that it highlighted the need to focus on moving the economy in directions that diversify the sources of activity and employment.

The Australian Bureau of Statistics revealed yesterday that the volume of activity in the Australian economy decreased 0.5% in the September quarter 2016, the first quarter of negative growth since the Queensland flood affected March quarter 2011. Through the year growth remains positive at 1.8%, reflecting the three previous quarters of growth.

Economic activity contracted in a number of areas this quarter. Private investment in new buildings detracted 0.3 percentage points from GDP growth, while new engineering and new and used dwellings detracted 0.2 and 0.1 percentage points respectively. Public capital expenditure detracted 0.5 percentage points from growth as it declined from elevated levels in the June quarter. Net exports detracted an additional 0.2 percentage points from growth. Australia’s terms of trade rose 4.5% through the September quarter.

Nonetheless, the Ai Group pointed to tentative signs that the December quarter will be better than the September quarter. These include the move of the Australian PMI and Australian PSI into positive territory in October and November after both indexes pointed to a slump in activity over the July, August and September period.

“While no cause for panic, the turndown in GDP is a timely reminder of the need to gear Australia’s economic policy towards measures that will lift business investment and employment opportunities,” said Ai Group Chief Executive, Innes Willox. “As a nation we need to cultivate sources of growth that move us away from an excessive reliance on commodity exports and that take advantage of opportunities in supplying services and manufactured goods into global growth markets. An important dimension of this medium-to-longer-term strategy is to unleash a new phase of investment in productivity-enhancing infrastructure.”

Responding to the ABS figures, Treasurer Scott Morrison said: “Our economy is growing faster than every G7 economy other than the UK, slightly better than the US and Canada and just above the OECD average, highlighting the work we must do to maintain and improve our competitiveness. In nominal terms, which has the biggest impact on the Budget, the economy grew by 0.5% in the quarter and 3% through the year.”