Australia’s Economic Rebound dubbed ‘Extraordinary Comeback’- March 2021
After recording two consecutive quarters of more than 3% economic growth, Australia is looking forward to a sustained economic recovery. Fuelled by surging consumption and increase in business investments, Australia has smashed many economists’ forecasts. The economy is now within 2% of its pre-pandemic level of GDP.
Household consumption led the rebound, increasing by 4.3% which was the second biggest quarterly increase. Likewise, private business investment rose by 3.9%, also the second largest quarterly increase since the mining boom. Dwelling investments, driven by cheap credit and government incentives such as Homebuilder, have jumped by more than 4%. Job advertisements have jumped 7.2% in February, reaching their highest level since October 2018, while housing finance approvals were up 10.5% in January and residential property prices rose 2.1%. The S&P/ASX 200 Index rose by 1.7% on Monday as investors bet on further gains in the economic recovery with the first 300,000 doses of the Oxford/AstraZeneca COVID-19 vaccine arriving in Sydney.
Treasurer Josh Frydenberg commented about the genuine strength of Australia’s rebound given this quarter was the first in which the government’s $90 billion JobKeeper program started to unwind. In December quarter, direct economic support by the federal government halved with 320,000 new jobs being added and 2.1 million workers coming off JobKeeper. Despite households saving $187bn over 2020 which was more than the previous 3.5 years combined, household savings have lowered from 18.5% to 12%, indicating higher levels of consumer confidence and spending.
Australia’s economic growth outcome was “considerably stronger” than the banks’, the market’s and the RBA’s expectations. The record low cash rate, rising housing prices and improved business & consumer sentiment will continue to bolster economic growth. KPMG chief economist Brendan Rynne described the December quarter as an “extraordinary comeback” with revised forecasts that the economy to return to pre-COVID-19 levels by the second half of 2021.