Australia’s economy has taken an important step on the long road to recovery after expanding by 3.3 per cent in the September quarter.
Economists have urged caution, however, saying it’s too early to say recovery is complete: the federal government is winding back mechanisms and unemployment remains high.
Just one day after the Reserve Bank governor said Australia’s economic recovery had so far been better than expected, the Australian Bureau of Statistics on Wednesday published a set of national accounts showing the national economy had grown for the first time this year.
The ABS figures revealed the largest quarterly increase in GDP since 1976 in the September quarter. But this came immediately after the largest quarterly contraction on record.
“As a result, economic activity fell 3.8 per cent through the year to September quarter,” said Michael Smedes, head of national accounts at the ABS.
Households were the main driver of the partial recovery.
As restrictions were lifted and social distancing eased, consumers increased their spending on goods and services by 7.9 per cent over the quarter – marking the largest quarterly rise in the 60-year history of the national accounts.
Outside Victoria, Australians rushed back to restaurants and pubs after a forced sabbatical and spent more money on recreation, transport, and cultural activities.
Home improvement also figured highly, with demand for household appliances, audio visual equipment and furniture remaining elevated as people continued working from home.
Yet overall household spending was 6.5 per cent lower than the same time last year, as the recovery came after a record 12.5 per cent fall in the June quarter, and the household savings ratio was 18.9 per cent.
Indeed APAC economist Callam Pickering said economic activity across the board was well below its level a year ago.
He said the drop in activity had been “greater than in both the early 1980s and early 1990s recessions” and the next stage of the recovery would be harder than the first.
“The recovery going forward will become more difficult. The gains made in the September quarter largely reflect the reopening of the Australian economy,” he said.
As we shift into 2021, we will begin to see the impact of removing JobKeeper and JobSeeker supports, with economic gains better reflecting overall market conditions.”
According to government data, more than 1.5 million Australians were receiving JobKeeper in November and roughly 1.3 million were receiving JobSeeker in October.
On January 4, the fortnightly JobKeeper payment will fall from $1200 to $1000 for full-time workers and from $750 to $650 for part-time workers. And the maximum JobSeeker payment for single adults with no children will fall from $815.70 a fortnight to $715.70 on January 1.
ANZ senior economist Felicity Emmett described the latest GDP results as “impressive”, but said it was “too early to say the economy is out of recession”.
“With 17.4 per cent of the labour force unemployed or working fewer hours than they would like, it will be some time before we can be confident that the economy is out of the woods,” she said.
But there’s some cause for optimism.
“Government stimulus has clearly helped to support incomes and spending,” Ms Emmett said.
“Support for households has been very strong, but the effect of the stimulus is most apparent on profits, with the profit share rising to a fresh record high.”
Meanwhile, credit and debit card spending collated separately by ANZ and Commonwealth Bank suggest that household consumption has continued to rise in the December quarter – buoyed by Victoria’s reopening and promising news on the vaccine front.
Data released by the ABS on Tuesday also points to a strong recovery in home building on the back of government incentives and record-low interest rates.
“Looking ahead, it is our assessment that GDP will post an increase of [roughly] 2 per cent over [the fourth quarter],” said Gareth Aird, head of Australian economics at Commonwealth Bank.
“The labour market has continued to improve over the December quarter and our internal credit and debit card data indicates that household consumption has pushed higher.
“Based on today’s numbers we estimate that overall GDP will be down by 2.8 per cent in 2020.
“That is a huge contraction in a historical context but it is an outcome which will compare favourably with many other economies in 2020.”
What Treasurer Josh Frydenberg said
Mr Frydenberg said the figures should give Australians “hope and optimism”, though he acknowledged the economy had a long way to go.
He said in a press conference that “Australia
“Australia’s recession may be over, but Australia’s economic recovery is not,” Mr Frydenberg told reporters in Canberra.
“There is a lot of ground to make up and many Australian households and many Australian businesses are doing it tough – very tough.”
What shadow treasurer Jim Chalmers said
Dr Chalmers said the rebound in GDP was welcome “but unsurprising given the easing of restrictions around much of Australia and the fact it is coming off an extraordinarily low base”.
“Morrison and Frydenberg shouldn’t be congratulating themselves while Australians are still hurting, jobless queues are still getting longer, and the chronic challenges of insecure work and underemployment remain,” he said in a written statement.
“Instead of building a strong, inclusive recovery with secure, well-paid jobs, the Morrison government is indulging tired old ideological obsessions like cutting super, cutting support for the unemployed, and winding back consumer protections.
“The lack of a proper plan for jobs and their attacks on wages weakened the economy and made Australians vulnerable going into this recession and will jeopardise the recovery as well.”