The S&P/ASX 200 Index (ASX: JXO) is having a fairly nice day today, up 0.82% at the time of writing to 6,818 points. And understandably so. The Australian Bureau of Statistics (ABS) has just released its economic data, including gross domestic product, (GDP) for the quarter ending 31 December 2020. And it was a pleasing read.
The Australian economy grew by 3.1% over the quarter, in what was a nice beat on expectations. AMP Capital analysts had been expecting a lift of 2.5% for the quarter. Therefore, the 3.1% figure is a very healthy number indeed.
The short but sharp coronavirus-induced recession is now firmly in the rear-view mirror. Household consumption was the largest driver of GDP over the quarter, rising a healthy 4.3%. This contributed 2.3% to the total figure of 3.1%. Even so, annual spending in the hardest-hit areas of the economy is still reportedly depressed. Spending on transport services is still down 78.1% per annum. Additionally spending on hotels, cafes and restaurants is still down 29.8% per annum.
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Household cash contributes to GDP
But the overall GDP rise was helped by the household savings rate dropping. Significantly, this figure dropped from the historic highs of 22% that we saw in the midst of the 202 lockdowns. Finally landing at 12% for the quarter. That's a large drop. However, it still puts the savings rate well above the ~5% levels we saw prior to the pandemic.
That leaves plenty of cash in the bank for households that can be used for further consumption. AMP Capital notes that this is positive for household incomes. Especially as the labour market is also improving. On these numbers, AMP Capital is also estimating that Australian GDP will return to pre-COVID levels by the June quarter this year. It is possible these might return even by the end of the current quarter (ending 31 March).
However, it is also noted that the Australian economy is still around 3% below what it would have been without the pandemic.
The state of the states
In terms of individual states, Victoria was the standout performer. Significantly, it grew 6.8% over the quarter. This, of course, was coming off of a low base. Especially as Victoria was the only state in a rolling lockdown over the previous quarter. Aside from Victoria, Tasmania, and the Northern Territory were the strongest performers, growing 3.3% and 4.1% respectively.
Queensland and New South Wales also had strong growth at 2.9% and 2% apiece. The Australian Capital Territory and South Australia were the laggards, but still managed 0.6% and 1.3% each. Western Australia managed 1.5%.
To conclude, AMP Captial commented the following on today's numbers:
The positive outcomes in GDP activity are unlikely to shift the dial on the [Reserve Bank of Australia] policy response for now… there is still some spare capacity in the economy as GDP growth would have been much stronger if COVID-19 never happened and the unemployment rate is at least 1% above its pre-COVID levels. So, expect the low interest rate environment to persist over 2021 and 2022 despite the recent back up in bond yields.
