GDP in detail: V-shaped recovery on track

The Australian Bureau of Statistics (ABS) today released national accounts for the December quarter, which registered a 3.1% rebound in real GDP over the quarter with GDP falling 1.1% through the year.

On a per capita basis, real GDP rose by 3.0% over the quarter and was down 1.8% over the year.

The seasonally adjusted GDP rebound was driven by household consumption expenditure, which contributed 2.3% to growth:

Contributors to Australian GDP Growth

Australian household consumption is driving Australia’s economic rebound, contributing 2.3 percentage points to Q4 GDP growth.

The next chart shows the ongoing rebound in GDP against the record 7.0% contraction in the June quarter on 2020:

Australian quarterly GDP growth

GDP lifted by 3.4% in Q3 and by 3.1% in Q4, recovering most of the 7.0% contraction experienced in Q2.

Despite the rebound, Australia’s real GDP remains 1.1% below its December 2019 peak, whereas GDP per capita remains 1.8% lower:

Australian GDP and per capita GDP

Australian GDP has almost returned to its December 2019 peak after posting a V-shaped recovery.

Quarterly final demand, which excludes export volumes, rebounded another 4.6% over the December quarter, with all jurisdictions experiencing rebounds:

Australian state final demand

All Australian states and territories reported positive final demand growth in Q4.

However, in the year to December 2020, final demand fell by 0.3% nationally, led by Victoria followed by NSW:

Australian state final demand 2020

Victoria and NSW continue to weigh on the nation’s growth.

The terms-of-trade rocketed by 4.8% over the December quarter in seasonally adjusted terms:

Australian terms-of-trade

Australia’s terms-of-trade continued to boom on the back of soaring iron ore prices.

Accordingly, the terms-of-trade bolstered national disposable income, which rose by 4.7% in per capita terms to a new record high:

Australian national disposable income

National disposable income hit a new high in Q4 on the back of the terms-of-trade boom.

Moreover, nominal GDP growth rebounded by 4.2% over the quarter to be 0.6% higher over the year:

Australian nominal GDP

Nominal GDP has rebounded strongly on the back of surging national disposable income from the booming terms-of-trade.

Average compensation of employees fell by 0.5% in the December quarter in nominal terms but was up 2.6% over the year. The fall reflects low-paid workers returning, which has pulled down average compensation:

Australian average employee compensation

Average compensation rose sharply in Q2 after low-paid workers lost their jobs. Now they are returning, average compensation has retraced.

Real GDP per hour worked (i.e. labour productivity) was dead flat despite low-paid workers returning to the workplace. Over the year, Real GDP per hour worked was up 2.5% over the year:

Australian real GDP per hour worked

Labour productivity remains significantly higher than pre-COVID levels.

The household savings ratio also retraced by 6.7% to 12.0%. This helps to explain the strong growth in household consumption expenditure:

Australian household savings rate

With lockdowns over, Australian households are saving less of their income.

Finally, the growth baton is successfully being passed from governments (via stimulus) to households:

Australian net savings

The loss of government stimulus is being more than offset by household spending.

In summary, after the Australian economy entered its first ‘technical recession’ since the early 1990s, the economy is experiencing a V-shaped recovery. We expect the recovery to continue through 2021.

Unconventional Economist
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