FILE PHOTO: People cross a busy street under holiday decorations in the city centre of Sydney, Australia, December 17, 2020. REUTERS/Loren Elliott
June 2, 2021
By Swati Pandey
SYDNEY (Reuters) -Australia’s economy extended its rapid recovery in the first quarter as consumers and businesses spent with abandon, lifting output back above where it was last year when pandemic lockdowns tipped the country into recession.
The economy expanded by a real 1.8% in the three months to March, data from the Australian Bureau of Statistics (ABS) showed. Economists in a Reuters poll had forecast a 1.5% rise following an upwardly revised 3.2% gain in the fourth quarter.
The solid back-to-back quarterly growth helped annual output climb 1.1% to A$525.7 billion ($408.05 billion), a major turnaround from last year’s recession low of $468.3 billion.
Australia is in rare company here with only five other countries boasting an economy that’s larger than before the pandemic, said Kristian Kolding, a partner at Deloitte Access Economics.
On average, Australia’s rich world peers are 2.7% smaller than they were before the pandemic, Deloitte’s research found, with the United Kingdom shrinking almost 9%, the European Union contracting by 5% and the United States 1% smaller.
Australia announced strict social distancing rules in late-March to curb the coronavirus pandemic forcing businesses from retailers to cafes and restaurants to down shutters while leading hundreds of thousands to queue up for welfare payments.
But the A$2 trillion economy has since staged a remarkable comeback by keeping virus numbers in check which has allowed businesses to reopen with confidence. Hefty and timely monetary and fiscal stimulus have been beneficial too.
“Today’s numbers show Australia’s recovery is becoming more broad-based,” Deloitte’s Kolding said.
“Families are spending locally, and businesses continue to invest, making the most of record low interest rates and tax offsets,” Kolding added.
“Underpinning all of that is continued strength in jobs numbers.”
Australia’s employment is higher than before the pandemic while measures of underemployment and unemployment have slipped rapidly though they are still above levels the country’s central bank believes is needed to spark wage pressures.
The Reserve Bank of Australia (RBA) has welcomed recent strength in data but has reiterated it will not raise the cash rate from its record low of 0.1% until inflation was sustainably within its 2-3% target band.
For that to occur, the jobless rate will need to fall to or below 4% from 5.6% currently and wage growth will have to double to at least 3%, conditions the RBA believes are unlikely to be met before 2024 at the earliest.
The first-quarter economic expansion was driven by private investment which contributed 0.9 percentage points to growth with machinery and equipment investment clocking its strongest quarterly rise since December 2009, Wednesday’s data showed.
A surge in dwelling activity also helped while household spending added 0.7 percentage points to growth.
Analysts were circumspect about the outlook given a seven-day lockdown in Australia’s second-most populous city Melbourne was extended by another week to stop a rapidly-spreading coronavirus strain.
“This lockdown will be the first lengthy one without JobKeeper so we need to be a bit more cautious about how the recovery may look,” ANZ economists wrote in a note, referring to a government welfare payment.
($1 = 1.2780 Australian dollars)
(Reporting by Wayne Cole and Swati Pandey; Editing by Ana Nicolaci da Costa)