Australia’s Economy Powers On, Recouping Pandemic Losses

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Australia’s economy expanded faster than economists forecast in the first three months of the year, driven by the private sector as firms boosted investment and households tapped their pandemic savings war chest.

Gross domestic product advanced 1.8% from the final quarter of 2020, when it rose a revised 3.2%, the Australian Bureau of Statistics said in Sydney Wednesday. Economists had forecast a first-quarter gain of 1.5%. From a year earlier, the economy expanded 1.1 % vs an estimated 0.6% increase.

Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 outbreaks, boosting consumer and business confidence. A massive fiscal-monetary injection strengthened the financial position of households and firms during the lockdown, and consumers are spending and companies hiring.

“Australia is in rare company here -- only five other countries can boast an economy that’s larger now than before the pandemic,” said Kristian Kolding, a partner at Deloitte Access Economics. “Maintaining this trajectory is now the task at hand -- the lockdowns in Victoria are a stark reminder that the pandemic is far from over.”

Deloitte noted that on average, economies in the Organisation for Economic Cooperation and Development are 2.7% smaller than they were before the pandemic. The U.K. is almost 9% smaller, the European Union is 5% smaller and the U.S. has shrunk 1%, it said.

Yet a potential risk to the outlook is the sluggish rollout of a Covid vaccine. This has been magnified by a renewed outbreak of the virus in Melbourne that prompted a lockdown in the nation’s second-largest city, and has now been extended for another week.

“The recovery will not be on completely solid ground until the pandemic is sustainably under control,” said Sarah Hunter, chief economist for BIS Oxford Economics. “This outcome is contingent on the continued roll out of the vaccine both domestically and globally.”

Today’s GDP report also showed:

• Household spending rose 1.2%, adding 0.7 percentage point to GDP; while government consumption slid 0.5%, cutting 0.1 percentage point
• Private investment advanced 5.3%, adding 0.9 percentage point, and dwelling investment increased 6.4%, its third straight quarterly gain
• Among the declines were non-dwelling construction, falling 1.1% and cutting 0.1 percentage point from GDP; net exports shaved 0.6 percentage point from GDP
• The savings rate slid to 11.6% in the first quarter from an upwardly revised 12.2% in the fourth quarter of 2020

Australia’s still-elevated savings rate suggests that households retain plenty of firepower for consumption to keep driving the economy’s expansion.

Unemployment in Australia has steadily declined as the recovery gathered pace, reaching 5.5% in April from a pandemic peak of 7.4%.

Some pandemic support has now been withdrawn, such as loan repayment deferrals and the government’s JobKeeper wage subsidy that expired just before the end of the first quarter. Treasury Secretary Steven Kennedy said in testimony Tuesday that partial data showed around 56,000 workers had lost their jobs in the four weeks following the conclusion of JobKeeper on March 28.

Australia’s government and central bank have worked closely to support the economy through the pandemic. Treasurer Josh Frydenberg unveiled further stimulus measures in his May budget, joining forces with Reserve Bank Governor Philip Lowe in trying to push the economy to maximum employment and revive sluggish inflation.

The RBA is due to decide next month on rolling over its yield target to a later maturity and whether to extend its quantitative easing program.

The Australian dollar took the release in stride, trading little changed at 77.67 U.S. cents at 12:38 p.m. in Sydney.

©2021 Bloomberg L.P.