The Australian economy grew by 0.7% in the June quarter, with growth already slowing in the months before the Delta strain spread uncontrollably in New South Wales and Victoria.
The result, announced by the Australian Bureau of Statistics on Wednesday, means Australia has avoided a technical recession for now, before an expected massive contraction in the September quarter due to lockdowns in its two largest states by population.
That momentum slowed considerably in the June quarter, as the Delta strain was introduced to Australia and short lockdowns around the country culminated in greater Sydney entering a lockdown in the final week of June that continues today, with more than a thousand new cases recorded daily.
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Across the year to June 2021, the economy has grown by 9.6%, and is now 1.6% larger than at the start of the pandemic – reflecting the severity of the slump in the June quarter of 2020. Despite the 0.7% increase in gross domestic product, in per capita terms Australia’s economy grew by just 0.4% in the June quarter of 2021.
Australia’s hopes of avoiding a technical recession now rest on the possibility of growth in the December quarter, after the national plan to reopen once vaccination rates reach 70% and 80% has softened or phased out lockdowns.
The treasurer, Josh Frydenberg, told reporters in Canberra that given extensive lockdowns there would be “challenging” and “difficult” days ahead, although the June result showed Australia’s economy was “resilient and its fundamentals remain sound”.
The treasury expected the economy would contract by “at least 2%” in the September quarter, he said.
Frydenberg said: “The Australian economy will bounce back once restrictions are eased”, but we “will have to wait and see what occurs” before making predictions for the December quarter.
Frydenberg warned state and territory leaders not to backtrack on the national plan to reopen, citing the “unprecedented number of CEOs from Australia’s leading companies – BHP, Telstra, Coles, WesFarmers, Qantas, Commonwealth Bank, AGL … representing more than 1 million workers” who backed the plan.
Deloitte Access Economics partner Stephen Smith said the June quarter was “the eye of the storm, with just 7% of the population locked down on any given day across the period”.
“Since then, that share has averaged close to 45%, and we’re seeing the impacts of that flow through to businesses and jobs,” he said.
“As things currently stand, that suggests we could see the economy shrink in the September quarter by more than 4%.”
The shadow treasurer, Jim Chalmers, said the numbers meant “the economy was slowing before the Sydney lockdown”.
Today’s numbers show the economy was slowing even before the Sydney lockdown – a consequence of Morrison & Frydenberg’s failures on vaccines, quarantine and economic support. Slower growth than the US, UK and OECD average and worse to come in the September qtr. #auspol #ausecon
— Jim Chalmers MP (@JEChalmers) September 1, 2021
Chalmers said in a statement: “Australia’s growth is now slower than the United States, United Kingdom and OECD average and the worst of the economic pain caused by the Morrison government’s incompetence is yet to come.”
The head of national accounts at the ABS, Michael Smedes, said domestic demand including “continued growth across household spending, private investment and public sector expenditure” was responsible for the June result.
“Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter,” he said.
The rise in GDP was driven by a one percentage point increase in private demand, consisting of 0.6 percentage points from household spending and 0.3 points from private investment.
Spending on services increased by 1.3% as Covid-19 restrictions eased around Australia in the months of April and May.
Dwelling investment increased for the fourth consecutive quarter, rising 1.7% in part due to demand from the homebuilder subsidy.
Public demand contributed 0.7 percentage points to growth, due to investment in infrastructure and higher health spending.
The terms of trade rose 7% on the back of high iron ore prices. The household saving ratio decreased to 9.7% from 11.6%.