Australian economic growth better than expected as nation’s GDP returns from COVID recession, but lockdowns bite

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Australia’s economy bounced back from the COVID recession, with national growth rising 9.6 per cent over the year to June.

The nation’s economy rose 0.7 per cent in the June quarter, according to Australian Bureau of Statistics (ABS) data, compared with a 1.9 per cent increase in the first three months of the year.

The figures for the three months to June do not give the full picture of the economy suffering from long lockdowns in Australia’s two biggest cities of Sydney and Melbourne, as well as shorter snap lockdowns in some other states.

The figures beat economists expectations.

A Reuters poll of economists had predicted that the economy would grow by 0.5 per cent in the June quarter, compared with the previous quarter.

Terms of trade now at highest in history

The terms of trade rose 7 per cent in the quarter to reach its highest level in history.

The ABS said strong export prices for mining commodities drove the quarterly rise, and that “strength in the terms of trade contributed to a 3.2 per cent increase in nominal GDP”.

The GDP figures were also driven by a rebound in domestic demand.

Both private and public demand increased, led by household spending (+1.1 per cent) and public investment (+7.4 per cent).

But household spending was 0.3 per cent below December quarter 2019 pre-pandemic levels.

Tourism-related services (+25.4 per cent) and hotels, cafes and restaurants (+2.2 per cent) continued to rebound reflecting increased tourism activity in the quarter.

Spending on services remains below pre-pandemic levels, particularly those impacted by the ongoing closure of international borders.

Purchases of motor vehicles were also a major contributor, rising 7.5 per cent.

Household spending rose across all states over the quarter, but as the ABS noted, “stay-at-home orders in NSW commenced in late June and did not have a significant impact on spending this quarter”.

Impact of lockdowns will bite in September figures

BIS Oxford Economics chief economist Dr Sarah Hunter said the data was “inherently backward-looking”.

“This is particularly true at the moment given the ongoing lockdowns in NSW, Victoria and the ACT,” Dr Hunter said.

“Economic activity has clearly been severely disrupted, and it is likely that the national economy will contract by around 3 per cent in the September quarter as a result.”

She said assuming the vaccination rollout continued at its current pace, “it is likely that the eastern states will begin to re-open in the December quarter, and this will enable the economy to recover”.

“But the shift to a new COVID-normal, where there are persistent cases within the community, will make some people cautious; the recovery this time around will be drawn out into 2022,” she said.

Investment in dwellings, which covered new construction and alterations and additions, rose 1.7 per cent on the quarter.

The buoyant housing market was also a key driver, with ownership transfer costs (which captures services related to buying and selling property, such as conveyancing and real estate agents) increasing by 10 per cent on the quarter.

“Overall, the increase in spending by households comfortably outstripped income growth, with the savings rate falling back to 9.7 per cent,” Dr Hunter said.

“But it remains well above pre-COVID levels (and consumer spending is still below), indicating that the recovery had further to run.”

By business reporters Nassim Khadem and Stephanie Chalmers (Original ABC Article)