This week’s National Accounts showed the Australian economy is strengthening and our economic recovery plan is working. Real GDP increased in the December quarter by 3.1 per cent, above the median market expectation of 2.5 per cent.
For the first time since records began more than 60 years ago, GDP growth is above 3 per cent for two consecutive quarters. The economy has now recovered 85 per cent of its COVID-induced fall, which is six months earlier and twice as fast as expected during the Budget in October.
It is remarkable progress given the economic abyss Australia was staring into last year. Australia’s performance on both the health and the economic front is world-leading, with our economy outperforming all major advanced economies in 2020.
While the UK’s economy contracted by 9.9 per cent, Italy 8.9 per cent, France 8.2 per cent, Canada 5 per cent, Japan 4.8 per cent, the US 3.3 per cent, Australia was only down 2.5 per cent.
This is an achievement all Australians contributed to and all Australians can be proud of.
There are still sectors and regions that are doing it tough but our economic support will continue and the National Accounts confirm that a broadbased recovery is under way.
What is particularly pleasing in these numbers is as our emergency support is tapering off, the private sector is stepping up.
In the December quarter, direct economic support from the federal government halved, yet at the same time, the economy grew by 3.1 per cent, added 320,000 new jobs and 2.1 million Australian workers graduated off JobKeeper.
In December, consumption was up 4.3 per cent, business investment was up 2.6 per cent – its strongest result since 2017 – and dwelling investment was up 4.1 per cent, its strongest quarterly increase since 2015.
This rebound in investment was driven by specific measures in our economic plan, including HomeBuilder and the expanded instant asset write-off.
This is seen in purchases of machinery and equipment, like vehicles and harvesters, that were up 8.1 per cent, the largest quarterly jump in this category in nearly seven years.
Farm GDP was also up 33 per cent in the quarter, off the back of the second biggest winter crop on record.
After a devastating and protracted period of drought, this was a welcome outcome for our hardworking farmers in regional Australia.
As restrictions have eased and Australians have come back to work, the nation’s wages bill, as measured by the compensation of employees, is up 1.5 per cent in the quarter and 2 per cent through the year.
With business and consumer confidence back to its pre-pandemic levels, Australian consumers are becoming less cautious, with the savings ratio falling from 18 per cent to 12 per cent.
While still around three times higher than pre-pandemic levels, the reduction in the savings ratio will continue to support consumption across the economy.
With an additional $240bn accumulated on household and business balance sheets that was not there this time last year, there is substantial scope for the private sector to take advantage of the recovery.
All states and territories saw economic growth in the December quarter, with NSW up 2.9 per cent, and the size of its economy only just below its prepandemic levels.
The Australian economy begins 2021 in a strong position. We have maintained our AAA credit rating.
Our labour market has remained resilient, with 94 per cent of the 1.3 million Australians who either lost their jobs or saw their working hours reduced to zero at the start of the pandemic now back at work, and investment is up off the back of incentives the Morrison government has put in place.
Josh Frydenberg is the federal Treasurer