Economy set to grow at fastest pace in nearly 45 years

Wednesday’s national accounts will show the economy grew at its fastest quarterly pace since early 1976 over the three months to September, big bank economists predict.

Melbourne’s exit from lockdown will drive a faster than anticipated spending recovery for the state. Picture: Sarah Matray

This Wednesday’s national accounts will show the economy growing at its fastest quarterly pace in nearly 45 years over the three months to September, according to bank forecasts.

The bullish outlook came as new figures from the Department of Finance revealed the deficit was already tracking $3.6bn better than expected four months into the 2021 financial year.

The strength of the recovery over recent months has caught policymakers and economists off guard, with unprecedented stimulus and success in controlling the spread of the virus outside Victoria turbocharging a rebound in consumption.

The sharp rebound also looks set to trim projections for the largest commonwealth deficit since World War II. Finance department figures released on Friday show the underlying cash balance for the year to October 31 was a deficit of $104.1bn, or $3.6bn lower than the deficit of $107.6bn predicted in the October 6 federal budget. While total receipts were $0.5bn lower than forecast, total payments were $4bn down on projections.

The Weekend Australian understands the $3.6bn gap could be explained by lower-than-expected demand for JobKeeper and JobSeeker, as a swiftly rebounding economy helped create a bumper number of jobs in October, according to official labour force statistics. The monthly ­financial statements come just five days ahead of the release of the national accounts numbers.

Three of the four major banks significantly upgraded forecasts for real GDP growth over the most recent quarter, with NAB tipping economic output would surge by 4.1 per cent, while ANZ and Westpac predicted growth would clock in at 3.2 per cent and 3 per cent respectively.

If the economy did grow by 4.1 per cent, it would be the fastest quarterly pace since 1976, when real GDP grew by 4.4 per cent, and only the third time growth has exceeded 4 per cent since quarterly records began in 1959.

The three months to September will be followed by another quarter of booming 2 per cent growth over the final three months of the year, before growth “moderates from there,” NAB chief economist Alan Oster said.

ANZ senior economist Felicity Emmett said “the key message is that the economy is weathering the COVID-19 storm better than anticipated, helped by a strong health response and massive ­fiscal and monetary stimulus”.

The snapback over the second half of the year, while significant, needed to be put in the context of an even more historic 7 per cent collapse in output over the June quarter, the economists said.

Even after expanding by 4.1 per cent, the economy would still be 3.9 per cent smaller than it was a year earlier, Mr Oster said. And NAB expects national output will not return to its pre-COVID-19 level until the end of next year.