3 March 2021

National Accounts December quarter statement



Today’s National Accounts shows the Australian economy is strengthening and the Morrison Government’s economic recovery plan is working.

In the December quarter, Australia enjoyed economic growth of 3.1 per cent, significantly beating market expectations of 2.5 per cent.

This is the first time in recorded history that Australia has seen two consecutive quarters of economic growth of more than 3 per cent.

The Australian economy has recovered 85 per cent of its COVID-induced fall, six months earlier and twice as fast as we expected in last year’s October Budget.

This is a very encouraging performance from the Australian economy given the economic abyss that we were staring into at the peak of this crisis.

Australia’s performance on both the health and the economic front is world-leading, with our economy outperforming all other advanced economies in 2020.

While the United Kingdom contracted by 9.9 per cent, Italy 8.9 per cent, France 8.2 per cent, Canada 5 per cent, Japan 4.8 per cent, the United States 3.3 per cent, Australia was only down by 2.5 per cent. 

This is an achievement all Australians have contributed to and all Australians can be proud of.

There are still sectors and regions that are doing it tough, but our economic support will continue and today’s National Accounts confirm that a strong, broad-based recovery is underway.

What is particularly pleasing in today’s numbers is that as our emergency support is tapering off, the private sector is stepping up.

In the December quarter, direct economic support from the Federal Government halved, yet at the same time, the economy grew by 3.1 per cent, 320,000 new jobs were added and 2.1 million Australian workers graduated off JobKeeper.

In December, consumption was up 4.3 per cent, business investment was up 2.6 per cent - its strongest result since 2017 - and dwelling investment was up 4.1 per cent, its strongest quarterly increase since 2015.

The rebound in investment was driven by specific measures in our economic plan, including HomeBuilder and the expanded instant asset write off.

This is seen in purchases of machinery and equipment, like vehicles and harvesters, that was up 8.1 per cent – the largest quarterly increase in nearly seven years. 

Farm GDP was also up 33 per cent in the quarter, off the back of the second best winter crop on record.

After a devastating and protracted period of drought, this was a welcome outcome for our hard-working farmers in Australia’s regions.

As restrictions have eased and Australians have come back to work, the nation’s wages bill as measured by the compensation of employees, is up 1.5 per cent in the quarter and 2 per cent through the year.

With business and consumer confidence back to its pre-pandemic levels, Australian consumers are becoming less cautious, with the savings ratio falling from 18 per cent to 12 per cent.

While still around three times higher than its pre-pandemic levels, the reductions in the savings ratio will continue to support consumption across the economy.

With an additional $240 billion accumulated on household and business balance sheets that was not there this time last year, there is substantial scope for the private sector to take advantage of the economic recovery.

All states and territories saw economic growth in the December quarter, with Victoria recording the strongest growth at 6.8 per cent as it came out of lockdown.

While Victoria’s economy is still 3.4 per cent below pre-pandemic levels, state final demand has recovered across the rest of the country.

The Australian economy begins 2021 in a very strong position.

We have maintained our AAA credit rating.

Our labour market has remained resilient, with around 94 per cent of the 1.3 million Australians who either lost their jobs or saw their working hours reduced to zero at the start of the pandemic, now back at work, and business investment is up off the back of the Morrison Government’s expanded instant asset write off, HomeBuilder program and other incentives that we have put in last year’s Budget.

Our economic recovery plan is working and today’s National Accounts is a testament to that fact.

The job is not done, there are challenges ahead, but you wouldn’t want to be in any other country but Australia as we begin 2021.

I will now just go through a few slides. This is primarily a health crisis. And the improvement in our economic performance has been off the back of the containment of the virus across the country. If you look at the death per million here in Australia, it’s just above 30. In Canada, it’s above 500. In the United States tragically, it’s above 1500. That’s today’s story. Off the back of record growth last quarter, 3.1 per cent this quarter. Down for the year 1.1 per cent. Much better, than either the RBA or Treasury were forecasting last year.

This slide gives you a sense of what is happening in terms of real GDP. As you can see, it’s better than we have forecast and better than we were expecting. Twice as fast and six months earlier than we were forecasting in last year’s Budget. There is still though, a long way to go. And you really don’t know what’s around the corner. But that is a very encouraging graph for the Australian economy. Next slide.

The next slide goes to contributions to real GDP growth, and as you can see, it is very much a broad-based recovery. Household consumption will be 16-17 per cent [inaudible] contributed 2.3 percentage points. Dwelling investment, off the back of the HomeBuilder program. New business investment off the back of the expanded Instant Asset Write Off. Continued public final demand with Government investment in infrastructure. And then of course, ownership transfer costs which relate to the property sector, conveyancing, stamp duties, real estate agents, changes in inventories and exports. The sum total is 3.1 per cent growth. Household consumption as restrictions are eased, as confidence is coming back, people are getting about spending, with a 4.3 per cent increase. Next slide.

Again you’re seeing the vast majority of the categories being up. Purchase of vehicles, people taking public transport, private transport, going out to cafes and restaurants, purchasing footwear, recreation and culture, all of which - furnishing households and equipment - all of which are adding to economic growth when we see 13 out of the 17 categories seeing particular growth. Strongest quarterly growth since 2015, 4 point, up 1 per cent. Importantly, it’s up through the year as well. Next slide.

It’s very encouraging to see what is happening on business investment. Because with investment, you only get the immediate job creation and economic activity if you also get longer term gains to the economy from a productivity [inaudible] and our incentives on business investment have helped see the 2.6 per cent increase. Now if you break that down to non-mining investment, that’s at 3.3 per cent increase and if you look at mining investment it’s 1.4 per cent. This is pretty pleasing for Australia’s farmers today. Off the second best winter crop on record, a 33.3 per cent increase for the quarter. Next slide.

Nominal GDP growth, now there’s a strong terms of trade story here. Iron Ore prices are substantially up, as well, travelling above $150 a tonne. Let’s not forget we put it in the Budget at $55 a tonne free on board. But nominal GDP growth, 4.2 per cent up, and importantly, it’s up for the year, through the year. So that augers well as well for the Budget. Next slide.

The wages bill on the economy, up 2 per cent through the year, 1.5 per cent for the quarter. Again people are coming back to work. Next slide.

This is really important, because as I said there’s $240 billion that’s been accumulated on balance sheets that was not there this time last year as people couldn’t travel, couldn’t spend, Government support was continuing. There’s been a dramatic reduction in the household savings ratio from 18 per cent down to 12 per cent. It’s still around three times what it was pre-pandemic levels, but again it’s a positive sign.

I want to dwell on the next two final slides, because this puts Australia’s economic performance in a global context. In terms of international real GDP growth, quarter on quarter, compared to G7 nations, Australia stands tall. Australia stands tall amongst other advanced economies, based on our economic performance, over the course of the last twelve months, in the face of the biggest economic shock, since the Great Depression. Our first pandemic in a century. Next slide.

This is where you can see the calendar year, 2020. We’re down at 2.5 per cent and other major economies are significantly higher, as you can see with the UK economy, 9.9 per cent. That is a testament to the economic hit that COVID-19 has had on the global economy. Happy to take some questions.