September GDP "a significant positive surprise"

Summary: GDP down 1.9% in September quarter, better than expected; report “a significant positive surprise”; strong rebound “in the offing”; savings rate hits 19.8%, leaves consumers in “very good position to lift spending”; lower household consumption, inventories main drivers.

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 contracted by 1.9% over the September quarter. It was a better result than the 2.5% fall which had been generally expected but in contrast to the June quarter’s +0.7%. On an annual basis, GDP expanded by 3.9%, down from 9.6% in the June quarter.

Westpac Chief Economist Bill Evans called the result “a significant positive surprise”.

Commonwealth Government bond yields rose on the day despite noticeably lower long-term yields in US Treasury bond markets. By the close of business, the 3-year ACGB yield had gained 6bps to 1.11% while 10-year and 20-year yields each finished 4bps higher at 1.74% and 2.21% respectively.

“The September quarter national accounts are largely old news. The more pressing question is how quickly the lost activity will be recouped. A strong rebound in the December quarter looks to be in the offing, with retail sales up almost 5% in October and spending during Black Friday sales still strong,” said ANZ senior economist Felicity Emmett.

Westpac’s Evans agreed. “As long as we do not return to extensive lockdowns we can expect household spending to drive extraordinary growth over the course of 2022.”

Both economists noted the sharp rise in the household savings rate to 19.8%. Emmett said this would leave “consumers in a very good position to lift spending strongly through the December quarter and into 2022.” Evans thinks the savings rate “back at around 6%-8% by the end of 2022 cannot be ruled out.

Household consumption spending fell by $13.1 billion, or 4.8%, contributing -2.5 percentage points of the quarter’s 1.9% fall. A $3.4 billion fall in inventories contributed around -1.3 percentage points. Imports were $4.0 billion lower than in the previous quarter, adding 0.8 percentage points.

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