Weekly Economic Briefing: Head of steam pre-lockdown - Economics blog | Deloitte Australia has been saved
Limited functionality available
Today’s National Accounts release confirmed that Australia’s economy grew 0.7% through the June quarter, bolstering Australia’s strong economic recovery in first half of 2021.
Crucially, this data reflects what happened more than three months ago. In the time since, momentum has screeched to a grinding halt, with Australia’s biggest states thrown back into long lockdowns by virulent Delta outbreaks (see below).
Chart 1: Share of Australians in lockdown
Nonetheless, it’s important to reflect on what was going well prior to recent catastrophe, with the country’s attention now focused on ‘Recovery v2’ and what might be possible once vaccination targets are achieved.
Household spending rose another 1.1% in the June quarter, led by a 2.1% increase in New South Wales. Importantly, lockdown restrictions were only imposed on Sydney residents from late June.
Pent up travel demand was a big contributor as households made the most of their increased ability to move around. Indeed, domestic travel spending rose 25.4%, alongside a 7.5% increase in new vehicle purchases. Ever higher employment figures also played a part (real disposable income rose 2.1%), so too a decline in the household savings ratio, from 11.6% to 9.7%.
Moreover, Australia’s increase in household spending would have been larger were it not for Victoria’s lockdown in late May and early June. This impediment proved costly - an ominous sign for the September quarter - with Victorian household spending rising just 0.1% across the quarter.
Yet it was government spending that was the biggest driver of economic growth in June. In an effort to turbo-charge each state’s recovery, governments clearly shifted gears from consumption to investment. While public consumption rose 1.3%, investment climbed 7.4%, spearheaded by a 10.7% increase in state and local government investment.
On the private side, investment also climbed 2.0% as property markets across the country continued to boom. Ownership transfer costs rose another 10.0% following a 10.3% increase during the March quarter. Dwelling investment remained elevated, 9.8% higher than before the pandemic, pointing to a pipeline of construction activity that’s likely to have been delayed by current outbreaks.
International trade detracted 1.0pp from economic growth in June, as exports fell 3.2% alongside a 1.5% rise in imports. Commodity prices were high, boosting the government and private sector coffers, but volumes fell, led by a 25.7% decline in gold and a 3.7% drop in mineral ores. Concurrently, import growth was in part driven by the New Zealand travel bubble, with travel services soaring 352.0%, albeit from a miniscule starting point.
Chart 2: Contribution to economic growth, June 2021
Unfortunately, all these gains and much more will be wiped out by a significant economic decline to be recorded in the September quarter. Millions of Australians are doing it tough. Positive growth in June is likely to have stopped Australia from technically entering a second COVID recession, but champagne corks won’t be popping.
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.
William is a Graduate Economist working in Deloitte Access Economics’ Macroeconomic Policy & Forecasting team. Prior to joining Deloitte, William completed a Bachelor of Commerce Honours at the University of Melbourne majoring in Economics and Finance.