Dr Brendan Rynne, KPMG Chief Economist, comments on the ABS June quarter national accounts
The latest GDP results shows the national economy screeched to a halt in the June quarter of 2020, declining 7 percent from the previous quarter, to be down 0.2 percent year on year.
During this quarter many Australians saw their jobs evaporate or their hours worked fall, resulting in lower income and increased uncertainty. You can see this detailed in the national accounts: hours worked fell by about 10 percent, wages income for employees fell 2.5 percent, and real net disposable income per capita fell 8 percent .
Importantly, this income hit and uncertainty also drove household consumption down by over 12 percent during the quarter, led by a 17.6 percent fall in services spending; this correspondingly saw the household savings ratio increase sharply to about 20 percent, a number not seen since the early 1970s.
Other double digit falls over the quarter were recorded in imports (-12.9 percent) and investment (-10.0 percent), while exports fell by 6.9 percent. The fact that imports fell significantly more than exports means that the trade balance made a positive contribution to GDP growth. Although exports fell in aggregate, exports of iron ore held up, growing by 5 percent – without this, the headline GDP figure would have been worse.
The national accounts also showed the strong influence of JobKeeper on the economy during this period. The government’s COVID-19 wage subsidy program, combined with its business support package (Boosting Cash Flow for Employers), has seen gross surplus of corporations and payments to business owners increase by 11 percent and 22 percent respectively over the quarter.
However, consistent with the ‘there is no such thing as a free lunch’ philosophy (or more mundanely referred to as ‘double-entry accounting’), government taxes and subsidies fell by $56bn over the same time period, reflecting the $70bn in government support payments made during this time.
Overall, while these results are worse than we had anticipated, there are a few encouraging signs hidden amongst the gloom that suggest to us the basis of the recovery is still positive. Those who were employed during the June quarter were working extremely hard (gross value added per hour worked market sector was up 5.9 percent q-q), and the output they generated was highly valued (GDP per hour worked was up 3.1 percent q-q).
So we can say the core of the value-adding component of the Australian economy remains intact, but the niceties of our society – leisure, arts, sports, shopping – have taken a battering. But they will come back, just a little slower than we had hoped for.
Had the core of the economy cracked more – although it is still cracking, given the Victorian lockdown – then the social niceties would take even longer to recover because people’s concerns would have focused on having and keeping a job, putting food on the table and having a roof over their family’s head rather than anything else.