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Australia’s GDP falls by 1.9 per cent, second biggest contraction in 47 years

The Australian economy went backwards by 1.9 per cent in the September quarter, with the figures revealing Delta-induced lockdowns on the nation’s biggest cities had a major impact.

The gross domestic product figure was 0.2 per cent below the December quarter 2019 before the pandemic took hold, figures released on Wednesday by the Australian Bureau of Statistics showed.

However, it does not constitute a recession – two consecutive quarters of negative economic growth, given GDP was up 0.7 per cent in the June quarter and up 3.9 per cent through the year.

The worst slump during the pandemic was the June quarter of last year, when GDP plunged 6.8 per cent.

The ABS noted that domestic demand drove the recent fall.

“Prolonged lockdowns across NSW, Victoria and the ACT resulted in a substantial decline in household spending,” acting head of national accounts Sean Crick said.

“The fall in domestic demand was only partly offset by growth in net trade and public sector expenditure.”

CommSec chief economist Craig James said the data showed Australia’s economic resilience.

“Because the September quarter was dominated by lockdowns across Australia, especially in the south-east,” Mr James said.

“ So it is understandable that the economy contracted by 1.9 per cent in the quarter – the second biggest contraction in 47 years.

“But state and territory economies came out of lockdowns from mid-October.

Black Friday Sales
Camera IconCommSec chief economist Craig James said it shouldn’t surprise if the economy rebounds in the December quarter after lockdowns ended and the year’s biggest sales event sent shoppers out in droves. Damian Shaw Credit: News Corp Australia

“Over November, Aussies embraced the new freedoms such as shopping at ‘bricks and mortar’ stores at the Black Friday sales – putting forced savings to work.

“So it shouldn’t surprise if the economy rebounds in the December quarter by a similar or bigger magnitude as the September quarter contraction.”

Household spending suffered the most in the states hit hard by prolonged lockdowns, down by 8.4 per cent in NSW, Victoria and the ACT, compared to the rise of 0.7 per cent in all other states.

The ABS said that slump in private demand detracted 2.4 percentage points from GDP, with a 4.8 per cent fall in household final consumption expenditure.

Household spending on services fell by 5.8 per cent, with hotels, cafes and restaurants, recreation and culture, and transport services suffering the most.

Meanwhile, public demand contributed 0.7 percentage points to GDP growth, with increases in health-related spending.

Public investment fell slightly, but remained at elevated levels as public infrastructure projects continued, the ABS said.

The household saving ratio increased from 11.8 per cent to 19.8 per cent, driven by increased household income paired with a plunge in spending.

Household gross disposable income rose by 4.6 per cent – the fastest rise in almost 13 years.

Government-supported payments to households and small businesses affected by Covid-19 played a part in the household income increase.

“The household saving ratio was below the previous peak of 23.6 per cent in June quarter 2020, when national lockdowns drove a larger decline in household spending compared with this quarter,” Mr Crick said.

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