Australia: Economic recovery continues in Q2 amid strong fiscal and monetary support
GDP rose 0.7% in seasonally-adjusted quarter-on-quarter terms in Q2, benefiting from continued fiscal and monetary stimulus. The result beat market expectations of a softer increase and followed Q1’s 1.9% expansion. Meanwhile, on an annual basis, the economy expanded 9.6% year-on-year, following the 1.3% rise recorded in the first quarter.
The second quarter’s result was again driven by sturdy domestic demand. Growth in fixed capital spending moderated but remained healthy nonetheless, coming in at a solid 3.2% in seasonally-adjusted quarter-on-quarter terms following the 5.5% jump tallied in the prior quarter. This came on the back of strong investment in machinery and equipment and dwellings, as well as public investment. Meanwhile, household spending growth came in at 1.1% in Q2, following Q1’s 1.3% rise. Moreover, government spending increased 1.3%, swinging from Q1’s 0.3% decrease. Lastly, destocking subtracted 0.2 percentage points from growth in the quarter, as companies likely opted to lighten their warehouses amid global supply disruptions.
The external sector, meanwhile, dragged heavily on the economy, as growth in imports was accompanied by a drop in exports. Exports of goods and services fell 3.2% in Q2 (Q1: 0.0% s.a. qoq). Meanwhile, imports of goods and services increased 1.5%, highlighting the ongoing recovery in domestic activity (Q1: +3.4% s.a. qoq). Overall, the external sector subtracted 1.0 percentage point from growth in the quarter.
Commenting on the outlook, Robert Carnell, regional head of research for Asia-Pacific at ING, stated:
“This quarter’s boost will most likely drift back towards about zero in Q3 2021. And as private investment will likely be a function of consumption and export strength, that will also probably drift lower. Putting that all together, we would expect GDP growth of about -0.3% qoq in the third quarter. With our current forecasts ‘on the money’ at 0.7% qoq in Q2 2021, and already looking for a 0.3% contraction in Q3 2021, we have no reason to change our full-year forecast of 4.7% for 2021. This, however, assumes a 1% qoq bounce-back in Q4 2021, and that implies a re-opening of the economy. As this scenario will either take a fall in Covid-19 cases, more vaccination, a different reaction function to the virus from the government (more tolerance), or a bit of some or all of the above, this forecast remains subject to considerable risk, most of it on the downside. ”