Australia’s economy grew at a faster rate than expected in the last quarter of 2020 and indicators suggest huge monetary and fiscal stimulus continue to support growth this year.
The economy accelerated 3.1% in the three months ended December, Australian Bureau of Statistics (ABS) data showed on Wednesday, faster than expectations of 2.5%. Growth in the third quarter, meanwhile, was revised up to 3.4%.
Despite the best consecutive quarters of growth ever, annual output fell another 1.1%, underscoring the devastation caused by the coronavirus pandemic and suggesting that political support will still be needed for the $ 2 trillion economy. Australian dollars ($ 1.57 trillion).
“The ‘V’ nature of the recovery is visible everywhere – economic growth, the job market, retail spending and the housing market,” said Craig James, Sydney-based chief economist at CommSec. James expects the economy to rebound 4.2% in 2021.
Household spending jumped 4.3% from the previous quarter, adding 2.3 percentage points to GDP; government spending rose 0.8% quarter over quarter, contributing 0.2 percentage point, according to government data.
Data on credit and debit card spending from major banks as well as official figures on retail sales, employment and construction activity also point to a good start to 2021.
Marcel Thieliant, economist at Capital Economics, expects GDP growth of 4.5% in 2021, “which implies that given the drop in net migration due to the border closure, the economy will not will not experience a permanent decline in production due to the pandemic. “
“The work is not done”
Australia’s economy has outperformed its peers due to the government’s swift moves to eradicate the virus and a series of fiscal and monetary stimulus measures.
Its economic output fell 2.5% in 2020, far less than a decline of 10% in the UK, 9% in Italy, 5% in Canada and more than 3% in the US.
“Our economic stimulus plan is working and today’s national accounts are proof of that,” Treasurer Josh Frydenberg said at a press conference.
But he warned Australia was not out of the woods yet.
“The job is not done,” he added. “There are challenges to overcome. But you wouldn’t want to be in a country other than Australia as we start 2021. ”
To help ease the economic shock caused by closures due to a pandemic, the Reserve Bank of Australia (RBA) cut interest rates three times last year to an all-time high of 0.1% and launched an unprecedented quantitative easing program. The government also announced a wage subsidy program to keep people in jobs, while banks postponed payments on home loans and cut borrowing rates to stimulate credit growth.
On Tuesday, the RBA re-pledged to hold its three-year returns at 0.1% until its employment and inflation targets are met, which policymakers do not expect until 2024 in the earlier.
Indeed, Wednesday’s data showed that there was virtually no domestic inflation in the economy, with the biggest price increases coming from commodity exports.
The RBA has repeatedly stated that the unemployment rate needs to fall to around 4% from its current level of above 6% to help boost wage growth above 3% and for inflation to return to the its target range of 2-3%.
“Incentives and supports are still very much needed,” said James of CommSec. “Reserve capacity will remain in the labor market for a few more years, keeping the cash rate anchored at 0.1%.”