The reopening from the Covid-19 national shutdown led to the Australian economy rebounding at a faster-than-expected pace as real GDP growth in the September quarter lifted by 3.3% compared to the median estimate for a 2.5% rise. Over the first half of 2020, output declined by 7.3% following Q2's historic 7.0% contraction and a modest 0.3% fall in Q1. Australian GDP is now 4.2% lower than its pre-pandemic level, but this is from a trough of -7.3% in Q2. All told, the recovery is underway and the momentum is building with Victoria recently emerging from its shutdown, while news on vaccine developments has been encouraging, but it remains incomplete and the progress has not come evenly across the economy. With uncertainty over the outlook unusually high and spare capacity in the labour market at an elevated level, the recent Federal Budget and actions by the RBA, including the introduction of quantitive easing, have confirmed that significant policy support will continue for some time as the economy transitions through the pandemic shock.
By the start of the September quarter, the reopening was well underway across the nation giving strong impetus to the recovery. The momentum faded as rising virus case numbers in Victoria led to the eventual reversal of the state's reopening and for a time this had spillover effects on confidence in the other states. But with case numbers outside Victoria staying contained, the broader recovery got going again as confidence came back. The reopening helped assist a rebound in labour market conditions and by the end of the quarter a little more than half of the earlier 872k job losses that occured during the shutdown had been rovered. Today's national accounts reported that hours worked across the economy rebounded by 4.5% in Q3, though they are still 7% lower than their pre-pandemic level, which highlights the impact of the Victorian shutdown as well as speaking to the legacy of this pandemic being the damage it is inflicted on the labour market.
The key theme in today's national accounts was the rebound in household consumption as the reopening led to increased opportunities for people to engage in normal economic activity again. After contracting by 12.5% in Q2, household consumption rebounded by 7.9%q/q to add 4.0ppts to GDP in Q3. The profile was led by services consumption that lifted by 9.8%q/q after falling by 17.9% in Q2 as significant gains came through in hotels, cafes and restaurants (49.7%), health (26.0%), other household services (23.4%) and recreation and culture (12.8%). Goods consumption also rebounded from -3.4% in Q2 to 5.9% in Q3 on strong demand for new vehicles (15.4%) and clothing and footwear (21.8%). Other than the reopening, the support of earlier fiscal and monetary stimulus measures were a key driver of the rebound in household consumption. Real growth in household disposable income was sharply higher again in Q3 (3.3%) after surging up in Q2 (3.5%). Households made use of some of the money they had put aside during the shutdown, reflected by a 3.2ppt decline in the saving ratio in the quarter to 18.9%. With the level of saving still very high, this has put households in a good place to withstand the eventual tapering of fiscal support.
In other developments, business investment continued to fall (-4.1%q/q) as the focus of firms has been to cut back amid the very uncertain outlook to preserve liquidity. Residential construction activity lifted modestly (0.6%) as the support of the HomeBuilder policy boosted alteration work (5.1%) to overcome a 2.1% contraction in new home building. Public demand provided support through continued pandemic-related spending and investment rebounded from a decline in Q2. Meanwhile, net exports were a notable drag (-1.9ppts) reflecting a pick up in import spending relating to improved domestic demand conditions driven by the reopening as exports continued to pull back on the impact of the shuttering of inbound travel and weakness in offshore economies.
Link to the full review here
