Australia economy's Q3 slump not as bad as feared, recovery under way

SYDNEY (REUTERS) – Australia’s economy slammed into reverse last quarter as the Delta outbreak put half the population under lockdown, though a speedy recovery is already under way as world-beating vaccination rates set Sydney and Melbourne free.

The emergence of the Omicron strain is a new threat to the outlook, but with 87 per cent of the adult population now fully vaccinated, the government is determined to keep the economy open.

The damage done by self-imposed shutdowns was all too evident in Wednesday’s (Dec 1) report on gross domestic product (GDP) which showed output fell a steep 1.9 per cent in the third quarter.

That was still better than markets forecasts of a 2.7 per cent decline and relatively moderate compared with the 6.8 per cent quarterly slump suffered last year when the pandemic first struck.

The annual pace of growth slowed to 3.9 per cent, from 9.6 per cent in the second quarter, but again beat forecasts of 3 per cent, and analysts were optimistic the loss would be quickly recouped.

“We expect GDP to surpass its pre-Delta peak this quarter already and to keep surprising to the upside next year,” said Mr Marcel Thieliant, a senior economist at Capital Economics, who predicted growth of 5 per cent for this year.

“With the household savings rate jumping to 19.8 per cent, there’s enormous scope for consumption to recover over the coming quarters,” he added.

The Australian Bureau of Statistics noted that savings had been fattened by government support payments and stock dividends, as well as the enforced curb on spending.

In all, household consumption dropped 4.8 per cent in the third quarter to overshadow strength in government spending and net exports.

Yet the consumer is also leading the recovery with retail sales soaring 4.9 per cent in October as restrictions were lifted. Data from bank cards show November was also a strong month, culminating in a bumper Black Friday for retailers.

Consumption has been underpinned by a big build-up in savings and a surprisingly resilient labour market, where payrolls recovered all their lockdown losses in October.

Supporting spending power is a boom in house prices, which were up 22 per cent in the year to November. The median home has risen an average A$2,436 (S$2,374) every week for the past year.

Super-loose monetary policy is another stimulant as the Reserve Bank of Australia (RBA) seems determined to keep interest rates at a record low of 0.1 per cent for some time yet.

The central bank holds its last policy meeting of the year next week and is again expected to signal that no hike is likely until at least 2023.

Markets are wagering a move could come as early as July next year given the spike in global inflation, though price pressures are not nearly as hot with the main GDP measure of domestic inflation up 2.3 per cent in the year to September.

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