After being negative on the Australian economy throughout most of 2020, we shifted gears late in the year claiming the Australian economy was “poised for a V-shaped recovery”.
Our change in view was cemented after the September quarter national accounts recorded a much stronger than expected rebound in real GDP following Australia’s excellent handling of the COVID-19 pandemic:
This strong recovery was driven by the household sector and came despite Victoria remaining under lockdown and detracting from national growth over the quarter:
This meant the national economy would inevitably experience further solid growth over subsequent quarters as Victoria records ‘catch-up’ growth after reopening.
Massive accumulated household savings, combined with huge public infrastructure spending (see here), meant “the economy now faces the prospect of a strong rebound and V-shaped recovery in 2021”.
Already we are witnessing the evidence.
Last week’s labour market data from the ABS was unambiguously bullish, with employment recovering to only 0.7% below its February peak in December:
The next chart from economist Callam Pickering tells the story, with employment recovering far more quickly than the 1980s and 1990s recessions and looking decidedly “v-shaped”:
Adding to the picture, internal data from CBA shows that wages and salaries “paid into CBA bank accounts has accelerated sharply over the past few months”:
Moreover, “overall growth in wages & salaries paid plus government payments oscillated around 10%/yr over Q4 20 – well above pre-COVID levels… [and] strong growth in household income has continued over the first half of January”:
CBA also confirmed that the household savings boom continued over Q4, with “the CBA average total savings balance per household… up a whopping 16.7%/yr at December 2020”:
As we noted in our Christmas Special Report, “there is a massive pent up supply of unspent stimulus in the form of household savings now available to be spent across the economy”. And with restrictions now removed, “households are likely to go on a spending spree in 2021, in turn driving a strong economic rebound”.
The V-shaped economic recovery is already well on track.
