June GDP: underlying momentum strong but negative Sep quarter expected

Summary: GDP up 0.7% in June quarter, better than expected; report captures economy “in rear vision mirror”; details of report “solid”; household consumption, public investment main drivers; net export growth a drag again; contraction expected in September quarter even though underlying economic momentum strong.

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. Positive growth rates resumed in the September 2020 quarter.


Figures released by the ABS indicate GDP expanded by 0.7% over the June quarter. It was a better result than the 0.5% rise which had been generally expected but considerably less than the March quarter’s revised figure of +1.9%. On an annual basis, GDP expanded by 9.6%, up from 1.3% and bolstered by the 7.0% fall in the June 2020 quarter which provided a much lower base.

“In short, today’s report captures the Australian economy in the rear vision mirror,” said Westpac Chief Economist Bill Evans.

GDP up 0.7% in June quarter, better than expected; report captures economy “in rear vision mirror”; details of report “solid”; household consumption, public investment main drivers; net export growth a drag again; contraction expected in September quarter even though underlying economic momentum strong.

Longer-term Commonwealth bond yields rose modestly on the day despite the good result and moderately higher yields in US Treasury bond markets. By the close of business, the 10-year ACGB yield had added 2bps to 1.23% and the 20-year yield had inched up 1bp to 1.85%. The 30-year yield finished unchanged at 0.30%.

“The details of the report are solid,” said ANZ senior economist Felicity Emmett. ”Domestic demand rose a robust 1.7% in the quarter, boosted by a large rise in public spending and strong growth in private demand. This strength was partly offset by a large subtraction from net exports.”

Household consumption spending rose by $3.0 billion, or 1.1%, contributing around 0.7 percentage points to the quarter’s 1.1% rise. A $3.4 billion rise in public investment contributed around 0.4 percentage points. Exports were $3.4 billion lower than in the previous quarter, subtracting 0.7 percentage points.

ANZ’s Emmett agreed with Westpac’s Evans, stating the figures are now out-of-date.” The more pressing question is how large the September quarter GDP contraction will be and what a Q4 [December quarter] rebound might look like.” However, she also noted recent labour market data suggest “underlying economic momentum was strong going into the September quarter” and expects consumer spending will recover quickly “once mobility restrictions lift.”


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