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Winter has arrived, but today’s National Accounts release from the ABS is far from gloomy. The data confirms that Australia’s economy is larger now than it was before COVID.
In real terms, Australia’s GDP rose 1.8% in the March quarter, lifting the economy to be 1.1% larger relative to December 2019. A similar increase in GDP per capita confirms that Australians are – on average – better off today than they were before COVID hit.
Household spending climbed 1.2% in the March quarter, edging closer to pre-COVID levels. The story here is jobs, combined with record high consumer confidence and more and more opportunities to spend domestically. Indeed, Australia’s labour market recovery is truly astonishing – even with JobKeeper having ended, employment remains elevated above pre-COVID levels.
Unsurprisingly, Victoria recorded the steepest rise in household spending, growing 3.2% as the state continued playing catch up to the rest of the country – the figures released today are for the first three months of the year. Victoria’s fourth lockdown, extended this morning, will be a damaging blow to willingness and ability to spend if cases continue to linger.
Looking forward, spending will continue to be supported by households drawing down their accumulated savings – government supports through last year and limited opportunities have left many households with a little extra in the bank to spend. The national savings rate edged slightly lower in the quarter to 11.6%, down from 12.2% in December 2020 and 22.0% in June 2020.
Chart: Contribution to GDP growth, March 2021
Private investment provided the biggest boost to GDP through the quarter, jumping 5.3%. Construction activity thrived – almost 17% of the March quarter’s GDP increase was linked to the construction sector. Extraordinary demand for new homes, supported by HomeBuilder, and home loans drove a 6.4% increase in dwelling investment, alongside a 10.6% increase in ownership transfer costs.
Aside from property, private investment also benefited from an 11.3% increase in machinery and equipment investment, highlighting the impact of the Federal Government’s instant asset write-off scheme which was recently extended until June 2023.
Changes in inventories also had a considerably impact on economic growth through the quarter, with total inventories increasing by $3.3 billion. Stock related to wholesale and retail trade soared by more than $4.5 billion, foreshadowing expected increases in household spending and business investment.
Government spending flatlined, rising by less than 0.2%, as the public sector continued its pivot from immediate fiscal support to targeted funding. Conversely, trade detracted 0.6pp from economic growth, with exports growing 0.5% (led by a 31.8% increase in cereals - early indicators suggest another good season, despite a damaging mouse plague) and imports increasing by 3.7% (household electrical goods jumped 20.6%).
In all, the data shows an economy that’s continuing to regain its mojo. Growth drivers are becoming more broad-based and government spending is becoming less of a lifeline.
But the National Accounts is also a look in the rear-view mirror, and the economic success story probably won’t resonate with many locked down Melburnians today. Mitigating the severity and frequency of lockdowns will key to supporting economic growth through the rest of the year. And into 2022 its increasingly clear that the measure of economic success will be vaccinations and the ability for societies to function with open borders, not closed borders.
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.