V-shaped recovery flattens as drive fades

After six months of record economic expansion, Australia’s V-shaped recovery is expected to have flattened out over the first three months of 2021.

The economy will grow through the March quarter, with domestic demand climbing strongly. Picture: Gaye Gerard

After six months of record economic expansion, Australia’s V-shaped recovery is expected to have flattened out in the first three months of 2021 as the early growth impetus from easing Covid restrictions and massive government stimulus fade.

Economists agreed, however, that real national output increased for the third consecutive quarter since the recession ended in the middle of last year, but it would be markedly slower than the growth rates of above 3 per cent in the previous two ­periods.

They offered an unusually wide range of estimates around the degree of the slowdown, ­ranging from 0.3 per cent real GDP growth in the quarter – which would leave the economy 0.5 per cent smaller than it was pre-pandemic – to robust growth of 1.4 per cent.

The consensus was for 1.1 per cent growth, based on the ­median forecasts surveyed by Bloomberg.

Experts agreed on two fundamentals: domestic demand will remain robust amid high consumer and business confidence; and net exports will provide a major drag on real GDP.

ANZ senior economist Felicity Emmett forecast a 1.3 per cent lift in GDP amid “broadly based strength: robust household consumption, strong housing construction, recovering business investment and solid public spending”.

“Business surveys are suggesting the outlook is strong and annual GDP growth should continue to accelerate,” Ms Emmett said.

In contrast, NAB chief economist Alan Oster predicted real GDP expanded by 0.7 per cent in the quarter, leaving the economy 0.4 per cent smaller than it was a year earlier.

The national accounts “will likely reflect the fact that the economy is transitioning beyond the rebound phase in activity to a more normal rate of growth, but that support is still coming from both fiscal and monetary policy,” Mr Oster said.

Citi chief economist Josh Williamson was at the lowest end of five forecasters surveyed by The Weekend Australian, predicting real GDP would expand by 0.3 per cent in the March quarter.