YieldTest 2 - March GDP: economy 'transitioning strongly from recovery to expansion'

Summary: GDP up strongly in March quarter, better than expected; economy 1.1% larger than March 2020; economy “transitioning strongly from recovery to expansion”; consistent with ongoing improvement in labour market, leading indicators; household consumption, investment, inventories all up solidly; net export growth a drag; “dominant driver” of economy switching from consumption to investment. Since the “recession we had to have” as the recession of 1990/91 became known, Australia’s GDP growth has been consistently positive, with only the odd negative quarter here and there. However, Australia’s first recession in nearly thirty years was inevitable in 2020 once governments introduced restrictions which shut businesses and limited people’s movements for an extended period of time. A return to growth was widely expected once restrictions were eased across much of the country in the September quarter. Figures released by the ABS indicate GDP expanded by 1.8% over the March quarter. It was a better result than the 1.1% rise which had been generally expected but considerably less than the December quarter’s revised figure of 3.2%. On an annual basis, GDP expanded by 1.1%, up from the December quarter’s comparable figure of -1.0% after revisions. “The key message from the Q1 GDP report is that the economy is now transitioning strongly from recovery to expansion, supported by still-high levels of fiscal and monetary stimulus,” said ANZ senior economist Felicity Emmett. “The strength is consistent with the ongoing improvement in the labour market, while leading indicators point to further strength over the coming year.”



Commonwealth bond yields fell on the day despite the good result and higher yields in US Treasury bond markets. By the close of business, the 3-year ACGB yield had slipped 1bp to 0.20%, the 10-year yield had shed 3bps to 1.62% while the 20-year yield finished 1bp lower at 2.34%.

Citi economist Josh Williamson said, “A rotation towards services consumption is under way as consumer behaviour returns to normal patterns after strong spending on goods during the lockdowns in 2020.”


Household consumption spending rose by $3.2 billion, or 1.2%, contributing around 0.7 percentage points to the quarter’s 1.8% rise. A $3.4 billion rise in inventories also contributed around 0.7 percentage points. Imports and imports both increased, subtracting around 0.6% percentage points in net terms.



Commonwealth bond yields fell on the day despite the good result and higher yields in US Treasury bond markets. By the close of business, the 3-year ACGB yield had slipped 1bp to 0.20%, the 10-year yield had shed 3bps to 1.62% while the 20-year yield finished 1bp lower at 2.34%.

Citi economist Josh Williamson said, “A rotation towards services consumption is under way as consumer behaviour returns to normal patterns after strong spending on goods during the lockdowns in 2020.”


Household consumption spending rose by $3.2 billion, or 1.2%, contributing around 0.7 percentage points to the quarter’s 1.8% rise. A $3.4 billion rise in inventories also contributed around 0.7 percentage points. Imports and imports both increased, subtracting around 0.6% percentage points in net terms.

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