Recession avoided as GDP takes a surprise upswing, but next quarter looks bleak: KPMG responds to today’s ABS national accounts
The Australian economy continues to surprise on the upside, with GDP growth in the June quarter recording 0.7 percent – marginally higher than both KPMG estimates and market expectations.
A technical recession has been avoided, although the next quarter looks bleak, and the anticipated December quarter recovery is very dependent on the speed of lockdowns ending.
Household consumption (+$3.0 bn) and government spending ($1.3 bn) were the heroes of the June quarter, with these two categories alone driving more than half of the 1.7 percent uplift in domestic demand for the 3 months to June 2021.
Household consumption was boosted by strong income growth, especially for private sector employees, with people spending more and saving proportionately less than in the previous quarter. Current dollar compensation of employees in the private sector rose 1.5 percent compared to 0.7 percent for public sector workers – although over the year public sector workers saw their incomes grow by 4.5 percent compared to 2.9 percent for private sector employees.
On trade, exports fell by 2.3 percent and imports increased by 1.5 percent. Net exports came in at around $5bn, a marked change on the March figures where net exports totalled $10bn.
The June quarter data also allows a fuller picture of which industries performed the strongest over FY21 and which ones struggled. The sectors recording the strongest annual growth in industry gross value added were Agriculture (32 percent), Road Transport (8 percent), Forestry and Fishing (7 percent), Metal products (7 percent), Wholesale trade (7 percent), Healthcare (6 percent) and Retail Trade (6 percent). Agriculture benefitted from about a 16 percent in rural commodity prices over the year.
Changes in consumer behaviour and spending patterns due to COVID-induced lockdowns explain much of the growth around road transport, wholesale and retail trade and healthcare expenditures; while the growth in forestry and metal products can be ascribed to brought forward construction activity, associated with the HomeBuilder and Instant Asset Write-Off stimulus packages.
KPMG’s short-term economic outlook, however, is not so encouraging, with September quarter economic activity expected to decline in real terms by around -2.6 percent. The more positive news is that the December quarter should show resilience and bounce back – but this is highly dependent on the economy gradually reopening, given the increasing double vaccination rates.
Were this opening up of the economy not to occur, then the outlook would be less rosy. Economic growth in the December quarter could potentially be as much as one-third lower than KPMG’s current central case forecasts if restrictions are not eased in line with expected vaccination rates.