Australia’s economy has bounced back from the COVID recession, growing by a much-better-than-expected 1.1 per cent over the past year.
Even as recently as a few weeks ago, most economists were hoping that Australia’s economy might just get back to where it was before nationwide pandemic lockdowns smashed the economy in late-March, April and into May last year.
But not only is Australia’s economic output bigger than it was before the national lockdown, it has also recovered from the previous quarter’s bushfire and early pandemic-driven decline, and is 0.8 per cent larger than its previous peak.
Deloitte Access Economics said there were only five other countries that could boast an economy bigger than it was prior to COVID-19.
The annual result was powered by a much-better-than-forecast 1.8 per cent expansion over the three months to March, when most economists were expecting 1.6 per cent.
Even those forecasts had been substantially revised higher as recent ABS data that feed directly into the GDP number came in well above expectations.
Private sector takes over from public
Analysts are also pleased with the main drivers of growth, split between business-driven private investment (which added 0.9 percentage points to the quarterly result) and household consumption (which added 0.7 percentage points).
Deloitte Access Economics partner Kristian Kolding said the GDP figures showed Australia’s recovery was becoming more broad-based.
“Families are spending locally, and businesses continue to invest, making the most of record-low interest rates and tax offsets,” he observed.
“Meanwhile, government stimulus is becoming a much smaller driver of growth than it was last year.”
The ABS said private investment was driven by both business machinery and equipment purchases, up 11.6 per cent in the strongest result since December 2009, and housing investment, up 6.4 per cent.
National COVID ‘second wave’ the biggest threat
However, most economists also caution that Australia cannot rest on its achievements so far.
CommSec’s chief economist Craig James pointed out that Victoria’s current lockdown — the effects of which will not show up in the GDP data until the June quarter figures are released in September — is a warning that the economic recovery could be quickly undone.
“Stimulus must remain in place until it is clear that a sustainable recovery has been achieved,” he wrote.
“Measures to suppress the virus need to be reinforced. And vaccination rates need to accelerate.
“The primary threats to the economic recovery are a broad Australian ‘second wave’ of the virus and a slow, extended vaccine rollout.”