Australia’s gross domestic product for the third quarter of 2021 contracted by 1.9% quarter-on-quarter, far less than what the government and the central bank were fearing.
While the Australian Treasury Department was expecting a 3% contraction in GDP for the third quarter, the Reserve Bank of Australia (RBA) forecast a 2.5% contraction in its November statement on monetary policy.
Data released by the Australian Bureau of Statistics (ABS) on Wednesday showed that private demand fell sharply during the quarter affected by lockdowns across major Australian cities. However, the economy was lifted by public spending on health and infrastructure.
Public spending boost
“The fall in domestic demand was only partly offset by growth in net trade and public sector expenditure. GDP in the September quarter 2021 was 0.2% below the December quarter 2019 pre-pandemic level,” said Sean Crick, acting head of National Accounts at the ABS, said in a statement.
According to economists, a revival in economic growth is around the corner. On Wednesday, the Australian dollar also reacted strongly to the data, rising 0.40% against the US dollar to 71.53 US cents.
“With private consumption now rebounding strongly as lockdowns have ended, output in states not affected by lockdowns continuing to rise, and capital spending resilient, we expect GDP to surpass its pre-Delta peak this quarter already and to keep surprising to the upside next year,” Marcel Thieliant, senior Japan, Australia and New Zealand economist at Capital Economics, said in a note.
Recovery around the corner
“While Omicron is clouding the outlook, today’s figures corroborate the RBA’s view that the lockdowns were merely a temporary setback. Barring major bad news on the virus front, we still expect the Bank to taper its bond purchases further in February and to end them by August,” Thieliant added.
“As the economy reopens the key driver of growth will be household spending…Spending is boosted by the increase in spending capacity as savers who do not normally save run down the savings they have acquired during lockdowns while those usual savers do so at a slower pace,” Bill Evans, chief economist at Westpac, said in a note.
Pre-Delta level GDP by next year
National Australia Bank’s chief economist Alan Oster also agreed that government support “cushioned household and business balance sheets”.
“Looking forward, we expect GDP to see a solid rebound in the fourth quarter, rising 2.0%…We expect the rebound to continue into the first quarter of 2022, which will see the pre-Delta level of GDP recovered…We see above trend growth continuing through 2022, with GDP rising by over 4% in the year,” Oster said in a note.
Read more: RBA holds rates but drops bond yield targets
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