Australian economy posts smaller-than-expected contraction in Q3 2021

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Australian economy posts smaller-than-expected contraction in Q3 2021

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 Australian economy posts smaller-than-expected contraction in Q3 2021
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Highlights

  • Australia’s GDP contracted by 1.9 per cent in the September quarter.
  • The country observed a steep fall in household spending in the last quarter due to lockdowns.
  • Both exports and imports contributed to economic growth in the September quarter.

The most awaited Gross Domestic Product (GDP) numbers for the September 2021 quarter are out now. But are they as severe as anticipated by economists and analysts? Surprisingly not!

As per the recently released data by the Australian Bureau of Statistics (ABS), the nation’s GDP contracted by 1.9 per cent in the last quarter in seasonally adjusted terms. The result has emerged as a surprise for economists, who were anticipating a contraction of 2.5 to 3 per cent due to the Delta variant outbreak. Meanwhile, the GDP was up 3.9 per cent through the year to the September quarter.

Must Watch: Australian economy contracted 1.9% in the September quarter | Breaking News Australia

Increased public spending and improved trade surplus helped cushion a steep fall in household spending during the lockdowns. As a result, the country’s second quarterly economic contraction was less severe than initially feared, with the annual GDP stronger than the pre-pandemic space.

A closer look at the data

Looking at the GDP components, private demand detracted 2.4 percentage points from economic growth, propelled by a decline in household final consumption expenditure. However, public demand counterbalanced the decline while contributing 0.7 percentage points to GDP growth. The credit goes to Commonwealth and state governments’ response to the virus outbreaks with increased health-related spending.

Also Read: Dramatic slowdown in the Australian property market, house price growth decelerates

Fall in household spending propelled a decline in GDP in last quarter

While household spending also plummeted in the September quarter, the decline of 4.8 per cent was less severe than the fall of 12.1 per cent recorded through the national lockdown in the June quarter of 2020. The household spending on goods and services was primarily constrained in New South Wales, Victoria, and the Australian Capital Territory, which spent over half the quarter under lockdown restrictions.

Meanwhile, the decline in domestic demand was partially offset by the growth in net trade. Interestingly, both exports and imports contributed to economic growth in the September quarter. While the export of mining and rural commodities increased, imports of goods fell amid a decline in domestic demand and global supply constraints.

Looking forward

The better-than-expected GDP result for the September quarter demonstrates the resilience of the Australian economy in dealing with the pandemic. It is an impressively strong performance, given the challenges presented by the COVID-19 Delta variant during the last quarter.

The result has heightened the possibility of strong GDP numbers in the December quarter amid the easing of COVID-19 restrictions and improved vaccinations. Meanwhile, a recovery in household spending can be anticipated in the December quarter, with consumers and households increasingly turning to holiday shopping amid the Christmas season.

Approaching holiday season can result in better-than-expected data for December quarter

Also Read: Omicron’s spread: How severely can it impact global recovery?

The current strength in the Australian economy may also prompt the central bank to tighten its monetary policy earlier than expected. Speculations are rife that the central bank will scrap its bond-buying program early in 2022 amid the ongoing recovery trends.

However, a quicker than expected economic recovery could fuel concerns around inflation, which might rise faster than existing forecasts. At the same time, it is hard to neglect growing worries around the spread of a new COVID-19 strain – Omicron, which might alter the course of economic revival.

Good Read: How are world powers dealing with inflation?

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