Economy bounces, GDP up 3.3pc in quarter

Economy posts fastest growth since the late 1970s amid a surge in consumer spending, to take Australia out of its COVID ‘recession’.

The GDP figures mark the end of the technical recession.

The economy is bouncing back strongly from recession, posting the fastest growth since the late 1970s on the back of a surge in consumer spending as coronavirus restrictions unwind.

The economy grew 3.3 per cent over the three months to the end of September – better than the 2.5 per cent most economists had expected – the ABS said on Wednesday, partly reversing the 7 per cent drop in the second quarter.

“Australia experienced a partial recovery in the September quarter. As a result, economic activity fell 3.8 per cent through the year to September quarter,” said the ABS’s head of national accounts Michael Smedes.

The improvement signals the end of “recession”, which is informally defined as two consecutive quarters of economic contraction.

Household spending, which plunged almost 13 per cent in the second quarter, rose almost 8 per cent, driven by spending on hotels, restaurants and cafes, which began to resume more normal trading in the quarter.

Victoria was the only state to record a fall in household spending, of 1.2 per cent, owing to a second lockdown that began in August.

“Despite record quarterly growth in household spending, the level in September quarter was 6.8 per cent lower than that recorded in December Quarter 2019,” Mr Smedes said.

The latest set of national accounts, which also revealed a near record high household saving ratio of 19 per cent, put the economy on track to grow faster than the Reserve Bank had forecast as recently as last month.

Hours earlier Reserve Bank governor Philip Lowe told a parliamentary committee he expected GDP growth to be “solidly positive” in both the September and December quarters. “And then, next year, our central scenario is for the economy to grow by 5 per cent and then 4 per cent over 2022,” he added.

Commonwealth Bank economist Gareth Aird said the GDP figures were “backward looking” and the more interesting question was “what the strength and duration of the economic recovery will look like in 2021 and beyond”.

“On that score we are optimistic and there is plenty of evidence in the forward looking data that signals strong outcomes next year are more likely than not,” he added.

More recent data, including surging in building approvals and elevated levels of consumer and business confidence, point to a continuation of strong growth in to the fourth quarter.

The OECD earlier this week revised up its forecast growth rate for 2020 for Australia from minus 4.1 to minus 3.8 per cent, which compared to an expected economic contraction this year across advanced countries of 5.5 per cent.