Deloitte Access Economics: The recovery remains remarkable

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Deloitte Access Economics: The recovery remains remarkable

4 March 2021:  There’s still a way to go, but today’s release of the latest quarterly national accounts confirms that Australia’s recovery remains remarkable.

The chart below shows that Australia’s economy is still 1.1% smaller than it was a year ago, before the pandemic hit.

Yet more comprehensive measures of our economic health are already back in the black.

Now versus a year ago - key economic aggregates

Source: ABS, Deloitte Access Economics. 

The second indicator shown in the above chart – real domestic income – would usually show even greater pain than the real economy amid a huge global recession.  When there’s a recession, the world economy usually hands Australia a pay cut via lower prices for our key exports.

But that hasn’t happened this time.  Partly thanks to the strength of iron ore prices, Australia’s domestic income is already 0.5% above pre-pandemic levels.

And the other key development during the COVID crisis has been the shift to lower interest rates.  For a nation that owed the world a trillion dollars before this crisis hit, lower interest rates are a key cost cut.

That’s why the final measure shown on the above chart – real national income – is even stronger still, up by 2.1% on its pre-pandemic levels.

Real national income has already rebounded above pre-pandemic levels

Source: ABS, Deloitte Access Economics.

As the second chart shows, the size of the initial hit to real national income was gobsmacking.  Yet, as Deloitte Principal Economist Doug Ross notes: “The recovery to date has been equally gobsmacking.

“The good news is that Australia’s living standards are linked to our real national income, rather than to the real economy.  The real national income measure is the one deserving of attention today.

“And it is showing two extra pieces of good news not in the more widely quoted real economy measure – the strength in Australian export prices, and the benefit to incomes from lower interest rates.”

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