Australia: Lifting of restrictions amid massive fiscal and monetary stimulus prompt rebound in Q3
December 2, 2020
GDP rose 3.3% in seasonally-adjusted quarter-on-quarter terms in Q3, benefiting from the easing of lockdown measures, as well as supportive fiscal and monetary policies. The result beat market expectations and contrasted Q2’s 7.0% fall. Meanwhile, on an annual basis, the economy contracted at a softer pace of 3.8% in Q3, following Q2’s 6.4% plunge.
The bounce-back was largely driven by a massive rebound in household spending. Private consumption surged 7.9% (Q2: -12.5% s.a. qoq) amid job gains, tax cuts and recovering consumer confidence. In addition, fixed investment contracted at a much milder pace (Q3: -0.1% s.a. qoq; Q2: -4.9% s.a. qoq) thanks to the reopening of businesses, improving business conditions and fiscal stimulus. However, government spending growth lost pace (Q3: +1.4% s.a. qoq; Q2: +3.0% s.a qoq).
The external sector, meanwhile, dragged on the economy, as imports rebounded while exports continued to fall, albeit at a less pronounced pace. Exports fell 3.2% in Q3 (Q2: -7.5% s.a. qoq), weighed down by continued international travel bans and reduced demand for mining commodities, while imports expanded 6.5% in Q3 after plummeting 12.8% in Q2, mainly due to higher demand for consumption goods as restrictions were lifted. Overall, the external sector subtracted 1.9 percentage points from growth, swinging from Q2’s 0.8 percentage-point addition.
Commenting on the outlook, Robert Carnell, regional head of research at ING, stated:
“Assuming that our 1.5% QoQ forecast for 4Q20 is on the mark, this should deliver a contraction for the full year of only 2.9% - an improvement on the 3.2% fall we had previously been pencilling in, and a robust performance when compared with other developed economies.Together with ongoing improvements in the labour force (notwithstanding the small hiccup in the last unemployment rate release), this should also ease the Reserve Bank of Australia's plight. They have remained under some pressure to keep delivering more easing. Sure, there can be further tweaks to the yield curve control and quantitative easing programmes […] but all sensible monetary tools have now already been deployed. Anything further is just finesse in our opinion.”
The economy is projected to return to growth in 2021, following this year’s pronounced contraction. A recovery in household spending and fixed investment, supportive fiscal and monetary policy measures, and the gradual reopening of the global economy should fuel the rebound. However, potential further restrictions at home and abroad pose a downside risk.