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Today’s National Accounts release confirmed that Australia’s economy shrunk by 1.9% in the September quarter. This follows four consecutive quarters of growth after the record 6.8% contraction in June 2020 and means the economy is now 0.2% below pre-COVID levels in late 2019.
Chart 1: Quarterly GDP growth, March 2018 – September 2021
Source: ABS National Accounts
The decline was led by falls in private demand stemming from lockdowns. Private consumption subtracted 2.5 percentage points from growth as trading and movement restrictions affected spending on a range of services and many retail goods. Overall, consumer spending in the lockdown-affected states fell 8.4% compared to a 0.7% rise for the rest of the country.
Declines in private consumption were partly offset by growth in public demand and exports. The government sector contributed 0.7 percentage points to growth, as Commonwealth and state governments compensated for imposing lockdowns with a range of transfers and business support spending. While public investment fell slightly, it remained at elevated levels as public infrastructure projects continued.
Trade contributed 1.0 percentage points as exports of mining and rural commodities grew, reflecting increased global demand for coal and LNG. Goods imports fell, reflecting ongoing global supply chain issues and a fall in domestic demand. Lockdowns also led to production disruptions for many firms, causing inventories to subtract 1.3 percentage points from growth.
Chart 2: Contribution to economic growth, September 2021 quarter
Source: ABS National Accounts
But importantly, these numbers reflect what happened during the recent lockdowns that are now in the rear-view mirror. Elevated vaccination rates have allowed most restrictions in lockdown states to be lifted, helping to unleash a wave of pent-up demand.
Some of this demand can be seen in the latest retail sales figures which surged by 4.9% in October as shops reopened following the easing of restrictions. The increase was particularly strong in NSW (13.3%) and the ACT (20.2%) after large declines in prior months. The labour market has also proven resilient, with payroll jobs rebounding to above pre-COVID levels in October as lockdowns eased.
The most significant risk to the outlook continues to come from the health front, with the Omicron variant again highlighting the unpredictable nature of COVID. The easing of international borders is being reconsidered, with the opening to international students and visitors already delayed and potential for some quarantine requirements to be reintroduced.
But having endured lengthy lockdowns, Australia is now in better shape than it has been for some time. With double dose vaccination rates closing in on 90% and the vaccine booster program underway, Australia is well placed to tackle COVID – but that doesn’t guarantee the next few months will be smooth sailing.
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.
Alex is a Senior Analyst working in Deloitte Access Economics’ Macroeconomic Policy and Forecasting and Economic Analysis and Policy teams. Since joining Deloitte Access Economics in early 2018, Alex has provided economic and policy analysis across a wide variety of issues and sectors, using a range of qualitative and quantitative skills.