Yesterday’s national accounts confirmed the enormous economic cost of the COVID-19-induced lockdowns.
With 13 million Australians in lockdown during the September quarter, the Australian economy contracted by 1.9 per cent – better than market expectations.
Growth remains 3.9 per cent higher through the year.
The result is no surprise. It is the third largest quarterly contraction on record, following the 6.8 fall in the June quarter last year and a 2 per cent drop in the June quarter in 1974.
It’s a lockdown story. Sydney’s metro area was in lockdown for the entire September quarter, while Melbourne was in lockdown for about two thirds of that period.
In response to these closures, the Morrison government provided significant economic support.
We established the COVID disaster payments, providing $12.9 billion to support about 2.4 million Australians who lost work, and partnered with the states to deliver more than $13 billion in business support to those affected.
At the same time, $10.2 billion in tax relief flowed to 11.5 million Australians during the September quarter – the largest tax cuts to flow in a single quarter in 20 years.
Yesterday’s national accounts revealed the stark difference in outcomes experienced between those jurisdictions in lockdown and those that were not.
The NSW economy contracted by 6.5 per cent, ACT by 1.6 per cent and Victoria by 1.4 per cent.
Meanwhile, growth in the other five states and territories continued to rise, up 1.6 per cent collectively for the quarter.
The key driver in the national accounts was the 4.8 per cent fall in household consumption, the second largest in the nation’s history.
Driven by the health restrictions, spending fell in 11 out of 17 categories, including more than 40 per cent in transport services and more than 20 per cent in hotels, cafes, restaurants, clothing and footwear.
New business investment declined by 1.1 per cent. However, the outlook for business investment is strong. The latest ABS survey implies record investment intentions across the non-mining sector this financial year.
Dwelling investment grew by 0.1 per cent in the September quarter, its fifth consecutive quarterly rise and is 11.4 per cent higher through the year.
There is a strong pipeline of construction activity supported by programs such as HomeBuilder, with 153,000 home approvals over the year to September.
New public final demand was strong, up 3 per cent in the quarter. So, too, were net exports, which contributed a full percentage point to GDP growth.
Rural exports were up significantly, increasing by 47 per cent through the year.
Both the terms of trade and the trade surplus are now at their highest in record.
Turning to the income side, compensation of employers, which measures the national wage and salary bill, increased by 0.5 per cent in the quarter to be 4.7 per cent higher through the year.
Both household and business balance sheets saw improvements in this period as a result of government policy support.
Household disposable income rose by 4.6 per cent in the quarter to be 2.9 per cent higher over the year. Increased social assistance benefits and tax cuts contributed.
With millions of households in lockdown, the savings ratio spiked to 19.8 per cent.
The good news is these delta restrictions are behind us.
Consumer spending has lifted sharply since the end of lockdowns. Retail trade was up 4.9 per cent in October, and retailers reported strong demand. More than $5 billion was spent on last week’s Black Friday sales, up 50 per cent on the previous year.
Supported by government tax incentives, non-mining investment is anticipated to reach a record level of more than $100 billion this year.
This is being supported by strong business and household balance sheets, having accumulated $370 billion that was not there at the start of the pandemic.
The economy is recovering strongly, and nowhere is this more clearly shown than in the labour market, with 350,000 jobs coming back since the start of September.
Job ads are more than 30 per cent higher than they were at the start of the pandemic.
We’re on a pathway to seeing unemployment sustained at below 5 per cent for just the second time in the past 50 years.
We have avoided the scarring of the labour market, so reminiscent of Australia’s experience during the 1980s and ’90s recessions, and we are working as a government to a clear fiscal strategy to drive unemployment to historically low levels.
“The latest ABS survey implies record investment intentions across the non-mining sector this financial year.”
Josh Frydenberg is the federal Treasurer.