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Australia is officially out of recession, with the economy expanding 3.3% in the September quarter as restrictions eased and businesses reopened. The result follows a massive 7.0% contraction in June and represents our fastest quarterly expansion since the mid-1970s.
But despite the return to growth, the economy is still 4.2% smaller today than where it was in December last year – and in per capita terms, that figure is closer to 5% (representing an income loss of $850 per person in the quarter).
Across Australia, only the NT and ACT are larger now than last year. Not surprisingly, Victoria is furthest behind, as the state’s second wave (and subsequent lockdown restrictions) zapped activity. Compared to last Christmas, the Victorian economy is close to 10% smaller (measured by State Final Demand plus net exports).
Chart 1: Change in size of the economy (State Final Demand plus net exports, seasonally adjusted) between December 2019 and September 2020
Source: ABS National Accounts
Added to that, Victoria was the only state to go backwards in September, as households further reined in spending. But around the rest of the country it was households doing the heavy lifting – adding a massive 4 percentage points to the quarter’s growth. Elsewhere, governments added a smidgen and inventories gave a healthy boost.
Chart 2: Contribution to growth, State Final Demand plus net exports, September quarter 2020
Source: ABS National Accounts
Despite the improvements – and promising signs in Victoria – businesses so far are still hesitant to pull the trigger on new investment (at the same time company profits have been strong, jumping nearly 25% since a low in March).
In part, the healthy profit position for many reflects the massive government stimulus which was pumped into the economy – most notably through JobKeeper. At its peak, the program saw the wages of close to four million employees (across one million businesses) paid by the government.
The next step is therefore to move from support to recovery by encouraging businesses to spend again. The federal budget in October saw the government announce a raft of measures aimed at doing just that, including company tax offsets and asset write-offs. It remains to be seen if and when the business sector en masse will be confident enough to take up those incentives.
It’s not until business investment kicks in that we can truly claim we have a sustainable economic recovery.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Harry joined Deloitte Access Economics in January 2017 after completing a Bachelors of Arts and Commerce, with honours in Econometrics and Business Statistics from Monash University. Harry’s area of focus is data analytics and econometric modelling, having conducted a range of research surrounding mental health, prescription drug use, labour markets and ageing populations.