Economy holds firm in face of lockdowns

THE economy grew by a robust 0.7 per cent over the three months to June, as national activity proved more resilient than expected to stop-start lockdowns through the quarter.

National accounts figures from the Australian Bureau of Statistics revealed real GDP growth decelerated sharply from 1.8 per cent in the previous quarter, but was nowhere near contracting, as had been feared by some economists leading into this morning’s release.

Instead, the figures showed real GDP growth came in well above consensus forecasts of around 0.3 per cent. The economy through the 2020-21 grew by 1.1 per cent versus the previous financial year, the ABS said.

The ABS said domestic demand drove the better than anticipated result.

Household spending, private investment and public expenditure were all strong, even as a fall in mining export volumes dragged.

Despite stay-at-home orders somewhere in the country on 29 days through the quarter, ABS head of national accounts Michael Smedes said “lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter”.

Australians also dipped into the estimated $200bn in excess cash reserves built up since the national lockdown in 2020, with the household savings ratio dropped from 11.6 per cent to a still high 9.7 per cent.

Private demand contributed 1 percentage point to real GDP growth, the ABS said.

Household spending increased 1.1 per cent and added 0.6 percentage points to growth.

It was driven by spending on services, which lifted 1.3 per cent “as Covid-19 restrictions continued to ease around Australia”, the ABS said.

Business investment rose 2 per cent and contributed 0.3 percentage points to growth, while dwelling investment increased for the fourth consecutive quarter, rising 1.7 per cent “reflecting continued demand since the introduction of the Homebuilder scheme”.

Government demand added a large 0.7 percentage points to growth, despite the end of Jobkeeper in March, as state and local governments continued to plough money into infrastructure projects. Public spending climbed 1.3 pre cent, reflecting the significant increase in health measures such as the vaccine rollout.

Net trade weighed on growth as mining commodity export volumes fell through the quarter.

This was even as soaring prices – particularly for iron ore – drove miners’ operating surplus up 16.9 per cent.