On the runway to Q3 results

Highlights 

  • At the end of July, the 2Q GDP data was announced.
  • ABC has also announced the performance of critical variables like retail sales, employment data and loan commitment data.
  • The numbers paint a flimsy picture overall but there are silver linings in the dark cloud like the record trade surplus earned.

Covid 19 has been like a bumper car ride in an amusement park for economies across the globe, a momentary lapse and the car is left spinning like a top! Australia waded through 2020 and the start of 2021 like an oracle. However, it could be so since the onset of the Delta variant and eyebrows are raised ever since.

The Australian Bureau of Statistics has announced the performance of various macroeconomic indicators for July 2021. Alongside, GDP numbers are out for the quarter ended 30 June. The reporting for the June quarter sure is not breezy. However, experts point out that it is only the eye of the storm. There is much speculation that the running quarter's results would be even more stinging. Gareth Aird, CBA's head of Australian economics, mentioned revising Q3 GDP contraction estimates to 4.25% from 2.75%.

Related Read: Australia’s June quarter GDP beats expectations; grows 0.7%

 

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The first of the three laps of Q3 is done. Let us have a look at ABS tracking the performance of Australia's critical indicators in July-

Retail sales dip

The country's retail trade declined 2.7% since June, while the yo-y decline was 3.1%. A closer industry-wise observation shows that the monthly turnover increased only in food retailing while household goods retailing, clothing, cafes all registered a dip. In a state-wise comparison, the numbers plummeted the most in New South Wales.

The numbers plunged on account of lockdowns triggered by the Delta variant. This is the worst recorded dip in 2021 and is worse than the market forecast of 2.3%. The sectoral contribution of the retail sector to the country's GDP is 18%.

Exports surge

The seasonally adjusted balance on goods and services saw a surplus of AU$12117, a 9.02% monthly increase. The exports of goods and services rose 5% while imports rose 3% over the period. Indicating a decrease in consumption, the imports of consumption goods declined by 3%.

Australia's exports increased 5% with a surge in LNG and thermal coal demand from Asia. Increased higher iron ore prices further boosted this. There was a notably strong demand from China for iron ore. The exports to China have seen a 72% growth y-o-y to rise to AU$19.4 billion.

Loan commitments wobbly

The country also saw new loan commitments (seasonally adjusted) increase to 0.2% for housing, 14.2% for personal fixed-term loans and 56% for business construction. However, the value of new loan commitments for the construction of new dwellings saw a decline due to the HomeBuilder grant, which had ended in April 2021.

Labour market flimsy

The second half of July saw the total payroll jobs decrease by 2%, while there was a 2.7% decline in the total wages paid. During July, Australia saw its unemployment rate fall to 4.6% from 4.9% in June. There has been a 5.4% annual increase in employment. However, July registered a decrease in the participation rate to 66%, while underemployment rose to 8.3%. The hours worked during July were also slashed by 3 million hours but compared to March 2020, the hours worked has increased by 0.7%.

The dips in the labour market have a role in the numbers plummeting in the retail sector. With the decrease in the number of hours worked, consumption expenditures are bound to be hit. Food retailing alone surviving the headwinds could mean shops and businesses being shut and people confining purchases to necessities and avoiding spending on items like accessories.

Related Read: Australia sees 277,674 business exits amid COVID-19 pandemic

Bottom Line

The numbers sure are not a rainbow. Vaccination needs to outpace the current rates as well. The Morrison government needs to come up with better measures to combat the situation. Experts like Dr Sarah Hunter point out the economic disruptions and thus project a 3% contraction in the quarter ending 30 September. Dr Hunter, the chief economist with BIS Oxford Economics, opines that reopening may be only towards the end of 2021, and recovery can be expected only next year. The data for August is now awaited to gauge the precision of the contractionary projects.

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