Ultimate magazine theme for WordPress.

Australia’s economy looks better than it did a year ago. But unfortunately we are not out of the Covid forest yet | Greg Jericho

AAs expected, GDP numbers for the June quarter showed record annual growth as the economy looks much better than it did a year ago. The problem, however, is that while the quarterly growth numbers were okay, they will likely be the best we will see by next year as we continue to be hit by the Covid economic storm.

Everyone in Australia can pat themselves on the back, as the June quarter saw the Australian economy 9.6% bigger than the same quarter of 2020 – a number that surpassed the previous record of 9% growth in March 1967:

If you don’t see the graphic, click here

If that sounds absurd, yes it is.

Given that in the mining boom, the highest annual GDP growth ever recorded was 4.9%, you don’t need to have a degree in economics to know something is wrong – we are safe right now not in a boom.

As I noted on Tuesday, the number is the only reason the number is so high because almost all of them were banned last June, so it would all look fine by comparison.

So the focus should really be on quarterly growth. At 0.7% it is above expectations, but to be honest these expectations were more guesswork than usual.

Investment bank UBS actually lowered its growth expectations from 0.7% to 0.4% on Monday, but stated that it “could really be anything”.

And look, who can blame them for being a little insecure. Note that household consumption rose 1.1% in June. This is the smallest change since the beginning of the pandemic and still a bigger change than in a decade before the pandemic:

If you don’t see the graphic, click here

Why did the economy grow 0.7% in June? This increase in private consumption mainly followed by government spending and investment:

If you don’t see the graphic, click here

Almost all of the growth came from household spending – which made up for the decline in exports and the increase in imports (mainly due to household purchases).

And what did we spend our money on?

Mainly ancillary costs, rents and transport – both services and new cars:

If you don’t see the graphic, click here

We also spent a lot more eating in cafes and restaurants and staying in hotels, but we spent less on household items than we did in the first three months of this year.

However, this is an example of how quarterly numbers can also mask the real picture.

Yes, hospitality and transportation spending has increased, but it remains well below pre-pandemic levels, while our household equipment and new car spending is well above the following:

If you don’t see the graphic, click here

And of course, our expenses for items such as transport and hospitality services are currently falling back to the level of the previous year due to the current lockdowns.

Another concern is that private investment in either housing or non-residential construction or the purchase of machinery and equipment has spiked over the past year, but we are also seeing a slowdown there as government incentives run out.

These incentives helped the economy through last year’s lockdown. But in June, as it subsided, it meant private sector investment contributed less to the economy in June than the decline in exports that came due to weather and trade disruptions:

If you don’t see the graphic, click here

How are things like that fair when New South Wales and Victoria are closed?

That, of course, is the main problem with these numbers – yes, they look good compared to last June, but they also look good compared to current things.

The September quarter numbers, which will be released in three months’ time, are expected to show a further decline. Stephen Smith of Deloitte Access Economics believes the decline could be up to 4%.

That, I don’t need to tell you, is not a good thing.

Sign up to receive the top stories from Guardian Australia every morning

The concern, however, is that it was only down to 0.7% growth this quarter – that’s pretty solid growth in normal times, but not really during a recovery.

In March, Australia’s GDP was above pre-pandemic levels but still 2% below what we would have expected had the long-term trend continued. That was a very strong rebound from last year, but with growth of 0.7% in June we were still 1.9% behind trend.

A 4% drop in the current quarter would be a massive setback:

If you don’t see the graphic, click here

So what do we take from these numbers? Unfortunately not much. They tend to look good compared to the worst of last year and bear little resemblance to the economy we are in just three months later.

The economy had recovered much better than hoped a year ago due to high government consumption, investment and budget spending. But a year ago we were also hoping that lockdowns would be a thing of the past once we had a vaccine available.

Until then, GDP numbers will be largely irrelevant.

Comments are closed.