Australia’s economy rebounded in the September quarter but the Reserve Bank governor is warning the recovery from the pandemic will be uneven, bumpy and protracted.
Gross domestic product through the year fell by 3.8% as a consequence of the most significant economic shock since the Great Depression according to the latest national accounts released by the Australian Bureau of Statistics.
But Australia’s economy grew by 3.3% in the September quarter, which is the largest quarterly increase in GDP since 1976.
A rebound in consumption was a key driver of the September result. Household consumption increased 7.9% in the September quarter, which is the largest rise in the 60-year history of the national accounts.
But given consumption fell by 12.5% in the June quarter, the recovery remains partial. In annual terms consumption remains down 6.5%.
Appearing before federal parliament’s economics committee just before the national accounts were released by the ABS, the Reserve Bank governor Philip Lowe said Australia had “turned the corner and a recovery is under way”.
Given the coronavirus was suppressed, and restrictions were being eased, the bank was expecting GDP growth to be “solidly positive” in both the September and December quarters, “and then, next year, our central scenario is for the economy to grow by 5% and then 4% over 2022”.
But Lowe warned there were significant risks in the economic outlook. Positive growth forecasts should not “hide the reality that the recovery will be uneven and bumpy and that it will be drawn out”.
“Some parts of the economy are doing quite well, but others are in considerable difficulty,” Lowe said. “And even with the overall economy now growing solidly, it will not be until the end of 2021 that we again reach the level of output recorded at the end of 2019”.
Lowe said the unemployment rate remained at 7% and was likely to be above 6% in two years time. Underemployment remained a problem, and wages growth was likely to remain subdued.
He said Australia was faring better than many other countries but he stressed there were no guarantees the positive trend would continue. Australia was likely, Lowe said, to experience a run of years with “unemployment too high and wage increases and inflation too low, leaving us short of our goals”.
The Morrison government seized on the positive September quarter result. The treasurer Josh Frydenberg said the September quarter result showed “the economic recovery is under way – the economic recovery that every Australian has worked hard for”.
“The Australian economy is showing remarkable resilience, but this is due to the achievements and to the sacrifices of millions of Australians across the country,” Frydenberg said.
Asked whether the escalating trade war with China would have a dampening impact on recovery, Frydenberg acknowledged the diplomatic row was “very serious” but he said consumption was a bigger contributor to the return to growth than the performance of exports.
The ABS reported that imports of goods and services rose 6.5% in the September quarter, while exports of goods and services fell 3.2%. The slump is attributable to international travel restrictions, and reduced demand for commodities, but the ABS reports the detraction from net exports in the quarter was the largest since the September quarter in 1980.
The latest national accounts also show households are continuing to save. Australia’s household saving-to-income ratio declined from a record high recorded in the June quarter, but the measure remains “elevated” according to the ABS, at 18.9%.
Labor said the government needed to desist from self-congratulation, given the risks in the economic outlook, and given the structural issues sitting behind the September quarter result.
The shadow treasurer Jim Chalmers said wages and living standards were stagnant and consumption remained weak – conditions that had “defined the economy for most of this government’s tenure”.
“A recovery in GDP is a good thing, but it will mean nothing for many Australians if it’s not accompanied by a substantial improvement in the jobs market as well,” Chalmers told reporters.
In question time on Wednesday, the Labor leader Anthony Albanese asked why the government was “congratulating itself” and “using marketing slogans” – like “the comeback” – when close to 1m people were unemployed and 1.4m were underemployed.
Frydenberg said: “The only person who is disappointed in today’s national accounts is the leader of the opposition”.
Ahead of Wednesday’s result, the Organisation for Economic Co-operation and Development warned Australia not to withdraw fiscal and monetary policy support before the recovery from the economic shock associated with the coronavirus pandemic is “well entrenched.