Lockdowns in Australia’s two largest cities caused the economy to contract 1.9 per cent in the September quarter, but despite being in the midst of a global pandemic GDP grew strongly through the year.
The economic hit in the three months to September 30 was the second largest on record following a 6.8 per cent fall in the June quarter last year, but came in far better than the 2.7 per cent drop predicted by markets.
“Given the backdrop of lockdowns in NSW, Victoria and the ACT this is an impressively strong performance,” BIS Oxford Economics’ Sarah Hunter said. “While GDP data is inherently backwards looking, the release does give a hint of what is to come in the December quarter data and beyond.”
Through the year, the economy grew 3.9 per cent and economists believe a bounce-back is well underway, with the latest jobs, retail and business investment figures showing a strong “W-shaped” recovery.
The economy is 0.2 per cent smaller than December 2019. But when compared to pre-pandemic forecasts, it is 4 per cent smaller than it would have been without COVID-19, according to Deloitte Access Economics.
State and federal government spending on vaccines and COVID-19 health measures meant public consumption added 0.7 percentage points to growth, partially offsetting a significant fall in private consumption.
Private demand detracted 2.4 percentage points, driven by the fall in household spending, which fell 4.8 per cent.
However, while more than 60 per cent of the population were subject to stay-at-home orders the household savings ratio rocketed to almost 20 per cent from 11.8 per cent, slightly below with the first national lockdown.
Households and businesses squirrelled away $360 billion during the COVID-19 crisis ready for a post-pandemic bounce-back, about $86 billion of which was added during the most recent delta lockdowns.
Treasurer Josh Frydenberg attributed the outcome to “unprecedented levels” of government support throughout the pandemic, which would stimulate consumer spending heading into the summer months.
Strong company profits in 2020-21, driven largely by record iron ore prices in the first six months of the year, prompted strong dividend flows that also helped bolster bank accounts, according to the Bureau of Statistics.
Non-lockdown states recorded a healthy 0.7 per cent gain in household consumption against an 8.4 per cent fall in NSW, Victoria and the ACT.
“This outcome highlights that once restrictions are eased and the virus is under control (either through low case numbers or high vaccination rates), the economy can recover rapidly,” Dr Hunter said.
Spending on services fell 5.8 per cent with transport services taking a stunning 40 per cent hit. Spending on dining out was down 21.2 per cent, and recreation and cultural spending was down 11.8 per cent.
Business investment surprised on the upside, with spending broadly flat on the quarter; disruption in the East coast states was broadly offset by increases elsewhere, Dr Hunter said.
Australia’s current account surplus was slightly above 4.7 per cent of GDP, led higher by strong coal, gas and agricultural exports, which added a full percentage point to economic growth.