Output +3.4%, meeting expectations. Conditions rebound strongly from delta lockdowns, led by the consumer, +6.3%, as people adapt to the challenges of the pandemic.
The Australian economy expanded by 3.4% in Q4, on the reopening from delta lockdowns (which were centred in NSW, Victoria and the ACT). This follows a 1.9% contraction in Q3.
The outcome met expectations, Westpac forecast +3.3% and market median +3.5%.
The result represents a relatively rapid rebound from delta disruptions, evidence that households and businesses are continuing to adapt to the challenges of the pandemic.
Annual growth edged up from 4.0% to 4.2% and the level of activity in Q4 2021 is 3.4% above that at the end of 2019, prior to the pandemic.
GDP, three measures: the GDP headline is an average of three measures: expenditure, income and production. GDP (E) printed at 3.6% qtr, GDP (I) 3.4% and GDP (P) was 3.3%.
Hours worked: The National Accounts estimate that hours worked increased by 4.3% in Q4, following a 4.8% decline in Q3.
These movements are more pronounced than reported in the Labour Force survey. Hours worked in the Labour Force Survey printed -3.2% for Q3 and +2.4% for Q4. For NSW, hours worked (in the LFS) was -9.0% for Q3 and +7.8%. for Q4. However, for Victoria, with various lockdowns and a later delta lockdown and reopening, hours worked contracted in Q4, down by -1.2% after a +0.2%.
State demand: NSW rebounded strongly on the reopening, with state demand up by 6.7% in Q4, reversing a sharp decline in Q3. For Victoria, state demand grew by 3.7% in Q4. Nationally, domestic demand increased by 2.9% – with subdued results in the other states (Qld flat, WA +0.1%, SA 0.3% and Tasmania -1.5%).
Key surprises: Spending by households came in above our expectations, driving the upside surprise on the GDP expenditure estimate. The consumer surprised to the upside across the board in Q4, all major spending categories outstripping expectations and incomes also posting a better than expected result.
The consumer: Total consumer spending increased by 6.3% in Q4, more than reversing a 4.8% fall in Q3. We had anticipated a rise of 5.0%.
This snap back in spending differs from the 2020 experience, when the rebound in consumer spending in Q3 (7.6%) only partially reversed the plunge in Q2 associated with the initial lockdown (-12.1%). As noted above, this is further evidence of adaptation to the challenges presented by the pandemic.
Within the spending detail, there are very large swings associated with the lockdown and reopening. For Q4: recreation & culture, +17.1%; hospitality, +41.6%; operation of vehicles +13.9%; and clothing & footwear, +41.6%.
Household saving ratio: Understandably, with the reopening, the household saving ratio moderated, to be at 13.6% in Q4, after spiking to 19.8% in Q3 (boosted by government payments and by reduced consumer spending). That is up from 11.8% in Q2 2021. Recall that the saving ratio spiked to 23.7% in Q2 2020, associated with the initial nationwide lockdown.
The saving ratio remains elevated (with an “equilibrium rate” in the order of 5%).
Over the two years of the pandemic, a sizeable household savings buffer has been accumulated. This can be drawn upon to help fund future spending – thereby supporting what is likely to be a strong economic recovery in 2022 (associated with high vaccination rates).
Expenditure detail:
Consumer spending and an inventory rebuild were the growth drivers in Q4.
Elsewhere spending was on the softer side.
Home building activity declined by -2.2%, including a -4.4% fall in renovations work. Recall that the Construction Work Survey indicated that work in the sector was led lower in the period by Victoria.
Business investment edged lower, -0.3%. This included a decline in equipment spending, -1.5%. Recall that the Capex survey indicated that while equipment spending did rebound in NSW and Victoria, falls were recorded elsewhere.
Public demand paused, edging -0.4% lower. That follows rapid growth of late, notably a 3.5% rise in Q3, boosted by the response to the delta outbreak. Annual growth is still brisk, at 5.6%, down from 7.3%.
Net exports a small negative, -0.2ppts, led by a decline in export volumes, -1.5%.
Total inventories added to growth, 0.9ppts, led by private non-farm business inventories, +1.0ppt, with an inventory rebuild as the economy reopened. Other inventories were a small negative, -0.1ppt (farm -0.3ppts and public authorities +0.2ppts).
