Australia / Spotlight Reports
Economic update: GDP, December 2020

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by Tom Youl
Dec 10 2020

Australian GDP growth exceeded expectations in the September 2020 quarter, increasing by 3.3%. Relaxed restrictions relating to COVID-19 supported economic growth during the quarter, with rising household expenditure driving the solid increase in GDP. A more open hospitality sector was reflected in a 49.7% rise in spending at hotels, cafes and restaurants. Healthcare (26.0% growth) and recreation and culture (12.8% growth) were other key sectors in supporting Australia’s official exit from its first recession in almost three decades. However, private capital expenditure has remained limited, decreasing by 6.0% in the September quarter. Shaky business confidence continues to discourage significant investment in capital upgrades. International trade results continue to show the effect of disrupted supply chains, with strong declines in both imports and exports during the quarter. Exports recorded a marginally greater decline than imports, constraining GDP growth.

The effect of easing lockdown measures is also reflected in state-level results. Western Australia led the states in terms of Gross State Product (GSP) growth, recording an 11.6% rise during the September quarter. New South Wales, South Australia, Queensland and Tasmania also reported double-digit growth. Increased compensation of employees supported rising household expenditure, as easing COVID-19 restrictions allowed employees in service industries to increase working hours. In contrast, Victorian GSP contracted by 1.2%, as the state endured an extended lockdown. However, Victorian GSP is forecast to drive national economic growth in the December 2020 quarter as service industries reopen.

Australian GDP is projected to continue its upward trend in the December quarter. IBISWorld has forecast a 2.1% expansion during the quarter. In addition to strong growth in Victoria, most states are expected to report steadily increasing GDP. Although JobKeeper and JobSeeker payments have been reduced, ongoing fiscal support is anticipated to boost household consumption expenditure during the quarter. Positive consumer confidence is also likely to support economic expansion. The further easing of COVID-19 restrictions contributed to the consumer sentiment index reaching 107.5 in November 2020. This marks the highest sentiment result since November 2013, despite unemployment remaining elevated and Australia officially being in recession at the time of the survey. However, remaining COVID-19 restrictions, albeit less-severe than in previous months, are projected to contain GDP growth over the remainder of 2020-21. Many services industries such as food services, arts and recreation, education, transport and personal services are anticipated to continue facing varying degrees of trading restrictions in an attempt to limit further COVID-19 outbreaks. In addition, the international border closure will result in immigration to Australia being negligible until restrictions are lifted. As population growth has been the primary driver of increasing GDP over the past decade, limited migration is expected to limit Australia’s economic recovery from the COVID-19 recession. The easing of international border restrictions to tourists is not expected to notably affect GDP growth. While tourism accounts for a solid 3.1% of GDP, three quarters of this value is from domestic travel.