Australia enjoyed stronger than expected economic growth for a second successive quarter in the three months to December, according to the Australian Bureau of Statistics (ABS).
The December national accounts, released Wednesday revealed that GDP rose 3.1% in the final quarter of 2020 from the three months to September when it grew by 3.4%.
Despite the strong growth in the final six months of the year, GDP was still 1.1% lower than the December, 2019 quarter. That however was better than the 3.7% fall in the 12 months to September.
The stronger than forecast growth was driven by solid rises in household spending and private investment, especially in building and housing. Nominal GDP rose by 4.2% in the quarter and by 1.1% over 2020.
And while the house savings ratio remained high at 12%, that was down sharply from the previous quarter when it was at 18.7%. The fall came as government support programs such as JobKeeper were wound back in the quarter.
On top of this the terms of trade rose 4.7% in the quarter (and will be up more than that this quarter, incidentally). The terms of trade rose 7.4% through 2020.
Further falls in the savings ratio will happen this year and put extra downward pressure on consumption, house prices and other areas of expenditure by households.
ABS Head of National Accounts Michael Smedes said in the statement “This is the first time in the over sixty year history of the National Accounts that GDP has grown by more than 3.0 per cent in two consecutive quarters.”
The ABS said household spending increased 4.3% as COVID-19 restrictions continued to ease. “Victoria recorded the strongest increase in household spending after strict lockdown restrictions were lifted.
“Despite growing at 10.4 per cent for the quarter, household spending in Victoria was 7.2 per cent below its pre-COVID level. Household spending for the rest of Australia, excluding Victoria, was 1.1 per cent lower than pre-COVID levels.”
Spending on goods rose 2.8% in the quarter and was up 6.2% through the year as consumers spent more on TVs, electronic equipment, phones, small appliances and as car import volumes improved, motor vehicles which jumped 31.8% in the final three months of the year.
Spending on services rose 5.2% (Thanks Victoria) but was still down 7.8% through the year as. While spending on recreation and culture, hotels, cafes and restaurants and health all continued to rebound in the final quarter as movement and trading restrictions eased, growth over the year was still weak. Annual growth in hospitality was down more than 12% and in arts and creation was 8% lower.
Private investment rose 3.9% and contributed 0.7 percentage points to growth, according to the ABS .
“There were rises across both housing and business investment with improved conditions which coincided with government initiatives, such as HomeBuilder and the expanded instant asset write-off.
Compensation of employees rose 1.5% as employment and hours worked increased with improvement in economic activity. Despite this, household income fell as non-labour income dropped with a reduction in government support payments. The household saving to income ratio remained elevated at 12.0%.
The ending of the drought had the now usual impact of helping drive demand, exports and GDP higher.
The ABS said the favourable weather conditions “contributed to a strong increase in agricultural production, reflected in a 26.8% increase in Agriculture, Forestry and Fishing Gross Value Added.
Rural exports rose 23.5% in the quarter, led by record production and exports of cereals in the quarter, especially December. The impact of the Chinese bans on rural exports (barley, meat, timber, wine and honey) was non-existent.
“There were flow-on positive impacts to other industries along the supply chain, including Wholesale Trade and Transport, Postal and Warehousing, which rose 3.6 per cent and 6.1 per cent respectively.”
The ABS said that productivity (GDP per hour worked) rose 2.5% in 2020 while real unit labour costs fell by 4.1%.