(Bloomberg) — Australia’s economy maintained its rapid recovery in the final three months of 2020 as households tapped their savings to consume and firms boosted investment, highlighting the nation’s successful pandemic response.
Gross domestic product jumped 3.1% from the third quarter, when it rose a revised 3.4%, the Australian Bureau of Statistics said in Sydney Wednesday. Economists had forecast a 2.5% expansion. From a year earlier, the economy shrank 1.1% versus an estimated 1.9% contraction.
“This is the first time in the over 60-year history of the national accounts that GDP has grown by more than 3% in two consecutive quarters,” the ABS said.
Household pent-up demand sees another strong quarter
The Australian dollar edged up immediately after the report and traded at 78.34 U.S. cents at 11:56 a.m. in Sydney.
Australia’s rapid rebound has been underpinned by its ability to contain Covid-19, boosting consumer and business confidence. The nation’s households are now spending savings built up from stimulus payments during last year’s lockdown when there were fewer consumption options.
The nation’s unemployment rate has steadily fallen with the economy gathering strength, dropping to 6.4% in January from a pandemic peak of 7.5%. The government is due to end its signature wage subsidy program — JobKeeper — at the end of this month, creating pressure on jobs in industries like tourism that face an ongoing struggle from closed international borders.
Today’s report showed:
Household spending surged 4.3%, adding 2.3 percentage points to GDP; government spending increased 0.8%, contributing 0.2 percentage pointResidential construction climbed 4.1%, while machinery and equipment purchases surged 8.9%The savings rate slid to 12% from a revised 18.7% in the third quarter
Australia recorded its first recession — defined locally as two consecutive quarters of contraction — in 28-1/2 years in the first half of 2020. That stretch included avoiding slumps during the 1997 Asian Financial Crisis, the Dot-Com Bubble and the 2008 global financial crisis.
The government and central bank have worked closely to support the economy during the pandemic. The Reserve Bank of Australia’s key role has been ensuring there was plenty of low-cost credit available and keeping down government borrowing costs.
The RBA’s key interest rate and three-year bond yield target are at 0.10% and it’s running a low-cost funding facility for banks. The central bank is also operating a A$200 billion ($156 billion) quantitative easing program targeting longer-dated securities that’s designed to help keep a lid on the currency.
The Australian dollar has risen more than 35% from its 55 U.S. cent nadir in March last year, spurred by the economy’s rapid recovery and the price of iron ore soaring to around $170/ton, a level unseen since the nation’s mining boom a decade ago.
(Updates with further details from report in seventh paragraph)
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