Australia’s Economy Had More Speed Than Thought as Delta Hit
Australia’s economy grew faster than expected last quarter as household’s tapped their savings to boost spending, underscoring the central bank’s view that the nation entered a renewed lockdown with solid momentum.
Gross domestic product advanced 0.7% in the three months through June from the prior quarter, when it rose an upwardly revised 1.9%, Australian Bureau of statistics data showed Wednesday. Economists had forecast a 0.4% gain. From a year earlier, when GDP tumbled in response to Covid, the economy grew 9.6%.
The result underscores Australia’s powerful recovery from the virus through the first part of the year, when it recouped output and employment lost during 2020’s lockdowns. That’s under threat from an outbreak of delta that started in Sydney -- now in its 10th week of lockdown. Infections have spread along the east coast, forcing shutdowns across the economy, as in many parts of Asia.
What Bloomberg Economics Says
“The 2Q GDP, and rebound since 2H 2020, highlights the speed the economy can recover with fiscal support once the virus is eliminated and lockdown restrictions are lifted. Australia’s recovery from the lockdown in 3Q is likely to be more subdued, reflecting reduced fiscal supports and a gradual easing of restrictions while the economy adapts to living with the virus.”
--James McIntyre, economist
Household spending rose 1.1%, adding 0.6 percentage point to GDP, driven by services consumption as virus restrictions were being eased around Australia before the delta outbreak and a decline in the savings rate. A 1.2% gain in compensation last quarter as employment and hours worked increased, also helped fuel spending.
Today’s report also showed:
- Government expenditure advanced 1.3%, adding 0.3 percentage point
- Housing activity continued to contribute to growth, with ownership transfer costs rising for a fourth consecutive quarter, advancing 10% and adding 0.2 percentage point
- Exports dropped 3.2% last quarter, subtracting 0.7 percentage point, due to falls in mining commodities following disruptions to both coal production and transport of iron ore to ports.; non-dwelling construction fell 1.9%, cutting 0.1 percentage point
- The household savings rate declined to 9.7% in the second quarter from 11.6% in the first three months of the year
The data, even more than normal, offered a look at the economy through the rear-view mirror, given that Australia’s two largest cities are in lockdown to combat the delta outbreak.
“But today’s release highlights that when restrictions are eased, fiscal and monetary policy are supportive, and households and businesses are confident in the outlook -- and in the Covid situation -- the economy will recover,” said Sarah Hunter, chief economist for BIS Oxford Economics.
Australia’s labor market had been tightening rapidly until the delta outbreak. The jobless rate dropped to 4.6% in July, the lowest level since 2008, though that was largely due to a fall in participation as Sydneysiders were unable to hunt for work.
Unemployment is expected to rise in coming months due to the restrictions imposed to combat delta.
On a more positive note, in response to the worsening outbreak, authorities have ramped up vaccinations as they seek to emulate northern hemisphere counterparts in trying to navigate an approach to living with the virus.
The central bank has so far maintained that Australia’s economy will bounce back rapidly from the latest outbreak, as it did in 2020. However, the prolonged duration of lockdowns and the likelihood the virus won’t be suppressed quickly could cast doubt on such an outcome
©2021 Bloomberg L.P.