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Australia Economy Expands Faster Than Expected on Households

Economic IndicatorsSep 01, 2021 13:14
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© Reuters.

(Bloomberg) -- Australia’s economy expanded faster than expected last quarter as strong household and government spending outweighed a drop in export volumes, underscoring the central bank’s view that it entered a renewed lockdown with solid momentum.

Gross domestic product rose 0.7% in the three months through June from the prior quarter, when it advanced an upwardly revised 1.9%, Australian Bureau of statistics data showed Wednesday. Economists had forecast a 0.4% gain. From the year earlier period, when GDP tumbled in response to Covid lockdowns, the economy expanded 9.6% versus a forecast 9.1%.

GDP was underpinned by “continued growth across household spending, private investment and public sector expenditure,” Michael Smedes, head of National Accounts at the ABS, said in a statement. “Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in New South Wales only commencing later in the quarter.”

The Australian dollar was little changed after the release, trading at 73.13 U.S. cents at 11:47 a.m. in Sydney.

The result underscores Australia’s powerful rebound from the virus through the first part of the year, when it recouped output and employment lost during 2020’s lockdowns. That recovery is under threat from an outbreak of delta that started in Sydney -- now in its 10th week of lockdown. Infections have spread along the populous east coast, forcing shutdowns across the economy, as in many countries around Asia.

Today’s report showed:

  • Household spending rose 1.1%, adding 0.6 percentage point to GDP; government spending advanced 1.3%, adding 0.3 percentage point
  • Exports dropped 3.2% last quarter, subtracting 0.7 percentage point; non-dwelling construction fell 1.9%, cutting 0.1 percentage point
  • The household savings rate declined to 9.7%% in the second quarter from 11.6% in the first three months of the year

The data, even more than normal, is a look at the economy through the rearview mirror given that Australia’s two largest cities are in lockdown. Sydney and Melbourne, when combined with their surrounding states, account for more than half of the nation’s GDP.

Australia’s labor market had been tightening rapidly until the delta outbreak The jobless rate dropped to 4.6% in July, the lowest level since 2008, though that was largely due to a fall in participation as Sydneysiders were unable to hunt for work. 

Unemployment is expected to rise in coming months due to the restrictions imposed to combat Covid.

On a more positive note, in response to the worsening outbreak, authorities have ramped up vaccinations as they seek to emulate northern hemisphere counterparts in trying to navigate an approach to living with the virus.

The central bank has so far maintained that Australia’s economy will bounce back rapidly from the latest outbreak, as it did in 2020. However, the prolonged duration of lockdowns and the likelihood that the virus won’t be suppressed quickly could cast doubt on such an outcome

(Adds further details from report.)

©2021 Bloomberg L.P.

Australia Economy Expands Faster Than Expected on Households
 

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