Recession fears recede as economy grows to June, but lockdowns still to show
Confidence is growing the federal government can go to an election early next year with the economy strengthening out of the pandemic after new figures showed households continuing their COVID-era buying spree.
Data from the Australian Bureau of Statistics on Wednesday showed the economy expanded by 0.7 per cent through the June quarter, taking annual growth to an all-time high of 9.6 per cent.
The result, stronger than expected, pre-dated the most recent series of lockdowns that has shutdown NSW, Victoria and the ACT with devastating economic impacts. Economists believe the September quarter national accounts could show GDP falling 4 per cent or more.
The September quarter GDP figures will be released in the first week of December, making it politically difficult for the government to talk up its economic credentials.
Treasurer Josh Frydenberg said the June quarter figures showed that before the lockdowns, the economy was in a relatively strong position that was being driven by domestic factors.
While the September quarter results would be challenging, he said he was confident of a rebound in the final three months of the year. The December quarter results will be released in early March, likely just in time for next year’s election which has to be held before May.
Treasurer Josh Frydenberg is confident of a rebound when lockdowns ease.Credit:Alex Ellinghausen
“These numbers do underline the fact that our economy can bounce back and that’s not just public final demand but dwelling investment, business investment, household consumption,” he said.
Overall private demand contributed 1 percentage point to growth while household spending added 0.6 percentage points. There was a lift of 1.3 per cent in spending on services due to relaxed restrictions.
Australians spent a record amount on clothes and footwear while expenditure on furnishings such as home office equipment is now 11.3 per cent higher than its pre-virus peak.
Consumer spending, which accounts for almost 60 per cent of economic activity, has now grown by 15.4 per cent or $36 billion since last year’s nationwide lockdowns.
Some sectors, even with few lockdowns through the quarter, have yet to recover. Spending on transport services are 68 per cent down on their pre-virus levels while expenditure through hotels, cafés and restaurants is 18 per cent lower than before the advent of the coronavirus.
Public demand added 0.7 percentage points to growth on the back of continuing state and federal government infrastructure projects. Spending on rail, roads, hospitals and schools continue to climb.
Private investment rose by 2 per cent and contributed 0.3 percentage points to growth. Dwelling investment, aided by the federal government’s HomeBuilder scheme, grew by 1.7 per cent.
The housing market is also supporting the economy, both via construction activity and ownership transfer costs related to soaring prices. Data from CoreLogic on Wednesday showed house values in Sydney climbing another 1.9 per cent to a record median of $1.3 million in August while in Melbourne they increased by 1.4 per cent to $955,000
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.
Shadow treasurer Jim Chalmers said the figures showed the economy was slowing even before the lockdown in Sydney and across Victoria.
“This is slower growth than the United States, United Kingdom and OECD average,” he said.
“The true cost of the Morrison government’s incompetence will be revealed in the September quarter, which covers the ongoing and protracted lockdowns in NSW, Victoria and the ACT.”
BIS Oxford Economics chief economist Sarah Hunter said the growth momentum had eased over June with the “easy wins” from relaxing restrictions and re-opening the economy already evident in earlier quarters, but the result was stronger than expected.
“The national accounts data is inherently backward-looking, and this is particularly true at the moment given the ongoing lockdowns in NSW, Victoria and the ACT,” Dr Hunter said. She expects a 3 per cent contraction over the September quarter and a “drawn out” recovery into 2022.
Westpac senior economist Andrew Hanlan said avoiding a negative quarter of growth in the June quarter was important for overall confidence.
“With the September quarter certain to print a negative under the weight of lockdowns in both NSW and Victoria the announcement, in December, of two consecutive negatives would have signalled that Australia had fallen back into recession,” he said.
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