GDP figures released today show the economy grew 1.8% in the quarter and 1.1% over the year. In addition, the economy grew 0.8% above the December 2019 quarter. This represents the last full quarter before the coronavirus reached our shores. The growth figure for this period is greater than economists anticipated. A Reuters poll of experts predicted a smaller growth rate of 1.5%.
Australia’s economy outpaces the world
Harley Dale, chief economist at CreditorWatch, says today’s results are excellent news.
“Against the broader economic backdrop, you could call today’s results a real boomer. If you think back to early June last year and how everyone feared GDP would fall off a cliff, this update is outstanding, particularly the trajectory of key commodity prices,” Mr Dale said.
While Mr Dale was upbeat about today’s news, he did say Australia still had “some way to go.”
“The March 2021 quarter figures have the protective shield of government support protecting them to some degree.”
“We’ll find out more in the June quarter when most of that support has been taken away. Realistically, it’s where we’re at in 2021/22 that will count, and nobody knows a great deal about that right now,” he added.
Australia is one of only five economies to be larger than it was pre-pandemic. That’s according to Kristina Kolding of Deloitte Access Economics, who was quoted in Reuters.
Treasurer Josh Frydenberg was quick to brag about the news. He tweeted a chart showing Australia’s economy had grown since the pandemic. The chart also demonstrated that every other nation of the G7’s economy had shrunk.
AMP Capital Chief Economist, Shane Oliver, says the high levels of consumer confidence, jobs recovery, and excess savings are all positive signs for future consumption. If this is true, that would be good news for retail companies like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN).
Mr Oliver also said private demand was the key to today’s positive figures. However, he also stated that this may have been aided by government assistance, such as JobKeeper and HomeBuilder.
ASX 200 and the economy
While the ASX 200 and the economy are not perfectly related, they can move together during certain times, even if at different rates. Take for example the COVID sell-off of March last year. The Australian stock market tanked at the same time as the economy did, as business and consumers suffered alike.
Investors have seen an even greater return. The ASX 200 has grown 7.9% over the same time the economy has only increased 0.8%. As more Australians become vaccinated and the economy opens up more, future economic growth should be good news for diversified investors.
Of course, some companies can move independently of economic conditions. Locally listed Ansell Limited (ASX: ANN) and Zoom Video Communications Inc (NASDAQ: ZM) both boomed last year as the rest of the economy faltered. Companies can also fail as the economy rises.