From the Chief Economist
Yet again, the Australian economy has surprised to the upside. Households are sitting on savings, businesses have shown resilience and the public sector has done the heavy lifting, cushioning the delta disruption and underwriting a smaller than expected contraction in today’s national accounts.
This strength shows in the fact that we will only need two per cent growth in the December quarter to get the economy back to pre-delta levels – which is achievable even in the face of Omicron.
There was never going to be cause for great surprises in today’s data. Governments quickly implemented the 2020 support playbook, spending to support economic activity and the higher frequency indicators suggest that the economy stormed back to life as restrictions eased.
This should provide confidence in Australia’s economic recovery profile – households and businesses are cashed up and ready to spend, while the government support has again done its job.
Unsurprisingly the delta divide stands out, but Victoria has showed much greater resilience than New South Wales. Despite being locked down for 80 per cent of the quarter, the state’s final demand recovered to just below pre-pandemic levels. New South Wales was locked down for the entire quarter and its economy is still 3.4 per cent smaller than pre-pandemic. But correlation isn’t causation, and the duration of lockdowns can’t entirely explain for the differing outcomes. In fact, both private consumption and investment were stronger in Victoria than New South Wales.
The fall in consumption in New South Wales in the September quarter was almost double that of Victoria, while private investment rose by 6 per cent in Victoria compared to a 7 per cent decline in New South Wales. The rise in Victoria’s non-dwelling construction was supported by investment in renewable energy projects while the rise in spending on machinery and equipment largely reflected spending on trucks and agricultural equipment.