Bumps in road ahead but our recovery is strong

Wednesday’s national accounts confirm Australia’s economic recovery is well under way. Facing a once-in-a-century pandemic that has caused the biggest economic shock since the Depression, Australia has performed better on the health and economic front than almost any other country.

There is not one person across the country on a ventilator or in an intensive care unit because of COVID-19. Eighty per cent of the 1.3 million Australians who lost their jobs or whose working hours were reduced to zero at the start of the pandemic are back at work.

Australia’s AAA credit rating has been reaffirmed. Australia is one of only nine nations to have a AAA rating from the three leading credit agencies.

In the September quarter, real gross domestic product increased by 3.3 per cent, ahead of market expectations of 2.5 per cent. This is the largest quarterly increase since 1976. It follows a 7 per cent fall in the June quarter.

Australia’s recession may be over but our recovery is not. There is a lot of ground to make up and many households and businesses continue to do it tough.

Victoria, a quarter of the national economy, has only just begun its recovery. Every state experienced strong growth in the quarter, except for Victoria, which contracted. If Victoria had grown in line with the rest of the nation, national growth in the September quarter would have been 5 per cent, not 3.3 per cent From the beginning of this crisis, the goal of the Morrison government has been to keep Australians in work and to help those out of work to find a job. During the past five months, 650,000 jobs have been created. The effective unemployment rate has come down from a peak of 14.9 per cent to 7.4 per cent. The participation rate is at 65.8 per cent, approaching its pre-crisis level. The RBA has said the government’s Job-Keeper program saved at least 700,000 jobs. In October, with the recovery gaining momentum, there were two million fewer workers and about 450,000 fewer businesses on JobKeeper, compared with September.

Consumer confidence is up in 12 out of the past 13 weeks; business confidence is back to its pre-COVID levels; and the housing market is strengthening. This recovery is being assisted by the federal government’s record $257bn in direct economic support, $130bn of which has already flowed into the pockets of households and businesses.

JobKeeper, JobSeeker, the cashflow boost, two $750 payments to millions of pensioners and others on income support have all helped cushion the blow and build the bridge to the other side of this crisis.

The September quarter results were driven by a 7.9 per cent increase in household consumption, the largest increase on record. Consumption was up in 14 of 17 categories, with the largest increases being in transport, hotels, cafes and restaurants.

Dwelling investment was up by 0.6 per cent following eight consecutive quarterly falls. The outlook for the housing market is positive, supported by programs such as the First Home Loan Deposit Scheme and HomeBuilder.

Business investment fell by 4.1 per cent. However, the latest Australian Bureau of Statistics capital expenditure survey, taken after our October 6 budget, in which we announced significant investment incentives, did show a 5.8 percentage point upgrade in non-mining business investment plans for 2020-21.

Compensation of employees, the measure of the national wages bill, increased 2.3 per cent in the quarter off the back of strong jobs growth to be 1.5 per cent higher through the year.

The rebound in employment, together with social assistance benefits, which are 48.3 per cent higher through the year, have contributed to an increase in household disposable income of 3.4 per cent in the September quarter and an increase of 8.1 per cent through the year.

The household saving ratio remains elevated at 18.9 per cent in the September quarter, following a high of 22.1 per cent in the June quarter. Strong household balance sheets, reflected in income growth and the higher saving ratio, will support recovery into the new year as confidence continues to build.

The national accounts give cause for optimism. RBA governor Philip Lowe said on Wednesday, “We have turned the corner and a recovery is under way.”

Still, challenges remain. The global economic environment remains uncertain as many nations experience an increase in COVID-19 cases and new lockdowns. The OECD has warned that several European countries could experience negative growth in the December quarter. But it has upgraded its economic outlook for Australia.

The road ahead will be bumpy but the Australian economy has demonstrated its remarkable resilience and is positioned as well as that of any other nation.