Strong household spending pushed Australian GDP up 3.3 percent in the third quarter, but unemployment remains high.
The Australian economy rebounded sharply from a coronavirus-induced recession in the third quarter as consumer spending rose, despite the country’s top central banker signaling that monetary policy will continue to support growth for a while.
The latest data shows that the Australian dollar 2 trillion ($ 1.5 trillion) economy grew faster than expected in the September quarter, after declining 7 percent in June as the country brought in most of COVID-19 under Control.
The recovery was led by budget spending, which rose 7.9 percent on the back of aggressive fiscal and monetary stimulus programs since March.
The Australian dollar briefly hit a daily high of $ 0.7389.
Economic growth is likely to be “solidly positive” in the December quarter as well, said Reserve Bank of Australia (RBA) Governor Philip Lowe, underscoring the country’s success in containing the pandemic.
The optimism is underscored by data on card spending by the country’s largest banks, which shows that consumers were in a turmoil during the last week of November during Black Friday and Cyber Monday sales.
The Commonwealth Bank of Top Lenders saw card spending 12 percent year-over-year for the week ended November 23, while ANZ saw a 28 percent increase.
[Bloomberg]Australia is not out of the woods yet as escalating tensions with top trading partner China are heavily dependent on the outlook.
Australian treasurer Josh Frydenberg said Wednesday the deterioration in trade relations with China was a “very serious” matter, despite domestic consumption being key to Australia’s post-pandemic recovery.
China has so far restricted Australian exports of lobster, beef, wood, coal and wine, although the overall economic impact is expected to be minimal as long as iron ore is spared, analysts said.
Agricultural exports account for only 0.02 percent of Australia’s annual production, while iron ore exports account for 7.5 percent of GDP.
“We expect some easing of tensions, especially given China’s decades of need to source key raw materials and metals from Australia,” said Paul Xiradis, chief investment officer at Bil.
Is the recession over?
Despite the rapid quarterly growth, the year after Australia entered its first recession in three decades, economic output was still down 3.8 percent in the first half of 2020 due to coronavirus lockdowns.
Lowe said third quarter GDP results were “good” but warned that any future economic recovery from the pandemic will likely be “bumpy and uneven”.
“There is still a great deal of uncertainty about the outlook,” Lowe told lawmakers.
“We are ready to do more if necessary. That said, we still believe that a negative rate in Australia is extremely unlikely. “
On Tuesday, the bank left its policy rate at a record low of 0.1 percent and maintained its quantitative easing program of A $ 100 billion (US $ 73.85 billion). This includes the RBA buying Australian government bonds to bring more money into the economy.
Despite the measures, unemployment is still above 7 percent, down from around 5 percent before the pandemic, while inflation and wage growth are weak.
“Make no mistake, Australia is still in recession,” said Callam Pickering, economist on the global construction site.
“Both fiscal and monetary support measures need to be in place through 2021 and beyond to ensure the recovery stays on track.”