The Australian economy grew 0.7% in the three months to June – but that was very old news made very much out of date by the continuing lockdowns in the two biggest states in the country – NSW and Victoria.
While the quarter-on-quarter growth reduced the chances of the nation recording its second recession in two years, it was still a sharp slowing in the pace of expansion after the 1.9% rise in the three months to March, 3.1% in the December quarter and 3.3% in the three months to September 2020.
The June quarter national accounts from the Australian Bureau of Statistics on Wednesday showed a big lift in spending by governments and households helped deliver the smallest increase in economic activity since the middle of last year.
Economists had tipped growth in the quarter of between 0.1 per cent and 0.6 per cent.
Annual growth reached a record 9.6% as last June’s result of minus 7% fell out of the rolling annual result.
Overall private demand contributed 1 percentage point to growth while household spending added 0.6 percentage points. There was a lift of 1.3% in spending on services due to relaxed lockdown restrictions.
Public demand added 0.7 percentage points to growth on the back of continuing state and federal government infrastructure projects.
Private investment rose by 2% and contributed 0.3 percentage points to growth. Dwelling investment, aided by the federal government’s HomeBuilder scheme, grew by 1.7%
Growth was reduced, however, by net trade which took 1 percentage point from growth. Inventories cut another 0.2 percentage points while non-dwelling investment reduced growth by 0.1 percentage point.
The economy had grown by an upwardly-revised 1.9% through the March quarter (previously 1.8%).
The bureau’s head of national accounts, Michael Smedes, said domestic spending drove the result.
“Domestic demand drove growth of 0.7 per cent this quarter which saw continued growth across household spending, private investment and public sector expenditure,” he said.
“Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter.”
The household saving ratio decreased to 9.7%, down from 11.6%, while the higher iron ore prices in the quarter, helped by higher copper and rebounding prices for oil and gas lifted our terms of trade 7% in the quarter and by 24.1% for the year.
That lifted nominal GDP by 3.2%, ensuring a surge of tax revenues for the state and federal governments.
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In commentary, AMP Chief Economist Shane Oliver said the June quarter outcome “avoids a technical recession as the current quarter is likely to see a 4% slump due to the lockdowns – assuming of course the December quarter sees some reopening in lockdown states and hence the start of a recovery.”
“While there is lots of gloom around there remains strong reason for optimism regarding economic growth in 2022: the vaccines are effective in helping prevent serious illness; Australia’s vaccination rate has increased dramatically; pent up demand will help drive recovery; and global growth is likely to be strong.
“And we expect monetary policy to be easier for longer than otherwise would have been the case (including with the RBA likely to delay its taper).”
“Australia is one of few major economies to see GDP well above pre coronavirus levels last quarter – but unfortunately it will see a setback this quarter,” Dr Oliver pointed out.
And the National Australia Bank’s Senior Economist, Gareth Spence said in a note yesterday:
“This outcome sees GDP 1.6% above its pre-COVID level, following three quarters of strong growth as the economy rebounded from last year’s contraction. Abstracting from a notable subtraction from net exports, these data show domestic demand continued to grow relatively strongly, supported by both the private and public sectors.
“They also reflect ongoing policy support, with a further strong outturn in business investment and another gain in dwelling investment. Household consumption and trade – especially services – continue to be impacted by pandemic-related border closures but showed further recovery in the quarter.
“However, these data are old news as they largely precede extended lockdowns which began in late June and are expected to last into Q4. Consequently, we expect a large fall in activity in Q3 but, more importantly, a solid rebound when restrictions ease.
“These data do not change our view on policy, with all focus now turning to how quickly we rebound from the current lockdowns acknowledging the fact the build-up of wage/inflationary pressure may take longer, centring the risk around our 2024 rate call.”
