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Australia’s economy returns to pre-Covid size on back of household spending

Australia’s economy is back to its pre-pandemic size, after growing 1.8% over the first three months of the year and 1.1% over the past 12 months.

The Australian Bureau of Statistics released the national accounts on Wednesday, which analysts at Deloitte said makes Australia one of just five countries worldwide to have grown its economy relative to pre-Covid levels.

The recovery was spurred by growth in household expenditure of 1.2% this quarter, with household spending accounting for 0.7 points of the 1.8% rise in gross domestic product. Spending in cafes and restaurants was up 14.8% in the last quarter alone but down by more than 10% over the previous year.

Victorian household consumption jumped by 3.2% in the March quarter, the strongest of any state or territory, after the state emerged from its second wave of coronavirus lockdown in late November.

The bullish gross domestic product figures were released as the Victorian government extended a lockdown on Melbourne for another week, and is engaged in a blame game with the federal government over its refusal to offer further financial assistance in the lockdown’s first week.

At a press conference in Canberra, treasurer Josh Frydenberg was peppered with questions about whether the federal government will soften its stance on financial assistance for the state.

Frydenberg pointed to $40bn of economic support contained in the May budget but committed to “hear out” the Victorian treasurer.

In question time, Scott Morrison revealed he will also speak to acting premier, James Merlino, on Wednesday evening.

Earlier, Frydenberg noted the government had ended the jobkeeper wage subsidy program in March, suggesting any further financial assistance would be given on a “national basis”.

In the March quarter, household saving declined from 12.2% to 11.6%, which Frydenberg cited as evidence for his view the economic recovery can be sustained despite the reduction in government supports as households loosen purse strings.

In addition to household spending, growth was spurred by businesses increasing their inventories (accounting for 0.7 points of the 1.8% growth). Net exports cut 0.6 points from the GDP figure and reduced government spending cut 0.1.

The federal government will be buoyed by the bureau of statistics’ figures, which show private investment surged 5.3% in the March quarter and is 3.6% higher through the year. The bureau noted that business and housing investment growth coincided with government initiatives including grants under the homebuilder scheme.

In the October budget the Coalition introduced more than $30bn of measures to spur business investment, including instant tax deductions for capital assets.

Frydenberg said this measure had “supercharged” investment, with a 11.6% rise in machinery and equipment. The pro-business measures were rolled over in the May 2021 budget.

Australia’s terms of trade rose 7.4%, led by stronger prices for iron ore and liquefied natural gas exports.

A Deloitte Access Economics partner, Kristian Kolding, said Australia was in “rare company” because average OECD economies were 2.7% smaller than they were in the fourth quarter of 2019.

“Today’s numbers show Australia’s recovery is becoming more broad-based,” he said. “Families are spending locally, and businesses continue to invest, making the most of record low interest rates and tax offsets.

“Meanwhile, government stimulus is becoming a much smaller driver of growth than it was last year.”

In April the Australian economy shrugged off the end of jobkeeper wage subsidies, with unemployment falling to 5.5% despite the loss of 30,600 jobs.

The shadow treasurer, Jim Chalmers, said the national accounts figures were “solid” but “expected”.

“After the deepest and most-damaging recession in our lifetime, it’s entirely normal for the economy to rebound,” he told reporters in Canberra. “To the extent that it has rebounded again in this quarter, we welcome that.”

Chalmers said that “wages growth remains stagnant off the back of record lows” and noted that “Victoria’s economy remains well below where it was this time last year, even before this state-wide lockdown”.

Chalmers warned Australia “won’t get that stronger growth without fewer lockdowns, and we won’t get fewer lockdowns without sorting out vaccinations and quarantine”.

Source: The Guardian