2 December 2020

National Accounts September Quarter

Today’s National Accounts confirm that Australia’s economic recovery is underway. 

The Australian economy is coming back. 

Facing a once-in-century-pandemic that has caused the greatest economic shock since the Great Depression, Australia has performed better on the health and economic front than nearly any other country in the world. 

Today, there is not a single person across the country on a ventilator or in ICU due to COVID. 

Eighty 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 are now back at work.

Australia’s AAA credit rating has been reaffirmed, with Australia one of only nine nations in the world to have a AAA rating from the three leading credit agencies. 

In the September quarter, real GDP increased by 3.3 per cent, beating market expectations.

This is the largest quarterly increase since 1976.

Today’s increase in the September quarter of 3.3 per cent is the largest quarterly increase since 1976.

It follows a 7 per cent fall in the June quarter.

Technically, Australia’s recession may be over but Australia’s economic recovery is not. 

There is a lot of ground to make up and many Australian households and many Australian businesses are doing it tough - very tough. 

Victoria, a quarter of the national economy has only just begun its recovery after the devastating second wave. 

In these National Accounts, every state saw strong growth in the quarter, except for Victoria where it contracted.

If Victoria had grown in line with the rest of the nation, national growth in the September quarter would have been 5 per cent, not 3.3 per cent. 

From the very beginning of this crisis, the goal of the Morrison Government has been to keep Australians in work and to help those Australians out of work, get a job.

This is what is happening. 

Over the last five months, 650,000 jobs have been created.

The effective unemployment rate has come down from a peak of 14.9 per cent to 7.4 per cent. 

The participation rate is at 65.8 per cent, approaching its pre-crisis level. 

And the Reserve Bank of Australia has said that the JobKeeper program has saved at least 700,000 jobs.  

In October, with the recovery gaining momentum, there were 2 million fewer workers and around 450,000 fewer businesses on JobKeeper in the month of October, compared to September. 

We are also seeing encouraging signs in other key economic indicators, with consumer confidence up in twelve out of the last thirteen weeks; business confidence back to its pre-COVID levels and the housing market strengthening. 

The economic recovery is being strongly supported by the Federal Government’s record $257 billion in economic support, $130 billion already flowing into the pockets of households and businesses. 

JobKeeper, JobSeeker, the Cash Flow Boost, two $750 payments to millions of pensioners and others on income support, has helped cushion the blow and helped build the bridge to the other side of this crisis. 

Today’s September quarter results were driven by a 7.9 per cent increase in household consumption, the largest increase on record. 

Consumption was up in fourteen of the seventeen categories, with the largest increases being in transport, hotels, cafes and restaurants.

New public final demand increased by 1.7 per cent to be 6.1 per cent higher through the year. 

Dwelling investment was up by 0.6 per cent following eight consecutive quarterly falls.

It was largely driven by alterations and additions which rose 5.1 per cent. 

The outlook for the housing market is positive, supported by programs like HomeBuilder and the First Home Loan Deposit Scheme.

Business investment fell by 4.1 per cent, with mining investment down by 5.2 per cent and non-mining investment down 3.7 per cent. 

However, the latest ABS CAPEX survey, taken after our October 6th Budget where we announced significant investment incentives, did show a significant 5.8 percentage point upgrade in non-mining business investment plans for 2020-21. 

Exports decreased by 3.2 per cent in the quarter, to be 14.9 per cent lower through the year.

Services exports, including tourism and education, continue to be particularly affected as international borders remain closed. 

Imports rose strongly at 6.5 per cent, consistent with the increase in consumption.

Overall, net exports detracted 1.9 percentage points from growth. 

The terms of trade was up 0.7 per cent, with nominal GDP up 3.7 per cent in the September quarter. 

Turning to income, compensation of employees, which is the measure of the national wages bill, increased 2.3 per cent in the quarter off the back of strong jobs growth to be 1.5 per cent higher through the year.

The rebound in employment, together with social assistance benefits which are 48.3 per cent higher through the year, have contributed to an increase in household disposable income of 3.4 per cent in the September quarter and an increase of 8.1 per cent through the year. 

The household savings ratio remains elevated at 18.9 per cent in the September quarter, following a record high of 22.1 per cent in the June quarter. 

Strong household balance sheets, reflected in income growth and the elevated saving ratio, will provide ongoing support for the economic recovery into the new year as confidence continues to build. 

Today’s National Accounts can give Australians cause for optimism and hope, as the Governor of the Reserve Bank said this morning “we have now turned the corner and a recovery is underway.” 

This being said, many challenges remain. 

The global economic environment remains uncertain as many nations experience an increase in COVID-19 cases and new lockdowns. 

This has seen the OECD warn overnight that a number of European countries could experience negative growth in the December quarter. 

But, the OECD at the same time have upgraded their economic outlook for Australia. 

The road ahead will be long, hard and bumpy but the Australian economy has demonstrated its remarkable resilience and Australia is as well positioned as well as any other nation on earth. 

Today’s National Accounts represent a major step forward in Australia’s economic recovery. 

Thank you. Just going to now turn to some slides and then we'll take some questions.

First slide, obviously, shows real GDP growth, and as I said, 3.3 percent up for the September quarter, down 3.8 percent for the year. This is an important slide because this goes to what is occurring across the different states and it's looking at both private and public expenditure. As you can see, New South Wales and Queensland have led the pack with 6.8 percent. South Australia, 6.7 percent. Northern Territory, Tasmania, WA, the ACT and Victoria being the only state that contracted over the September quarter.

The next slide shows the contributions to real GDP growth. This is very much a household consumption story today. As the restrictions are being eased, Australian families are getting out there and starting to spend again. Saw a massive drop in household consumption in the last quarter and now it's picked up. The other important factor here is net exports detracted 1.9 percent from GDP in the quarter.

Again 7.9 percent up in the quarter after a fall of 12.5 percent in the last quarter with household consumption.

As you can see, it's a story of the restrictions being eased and Australians being able to get about and do what they do best; travel around, go out to cafes and restaurants, visit their GP, incur other health expenses, a bit more shopping. It is a very positive story, 14 out of the 17 categories.

The next slide goes to business investment. Now, as you know, this was a real focus for us in the Budget and we have significantly boosted the investment incentives with the immediate expensing. But as I said, you have seen business investment down 4.1 percent for the quarter, but particularly a big fall in the mining investment at 5.2 percent, and a fall in the new non-mining investment of 3.7 percent.

Compensation of employees is the wages bill for the nation and, again, it is up by 2.3 percent in the quarter, and this reflects the strong jobs growth that we have seen.

Household gross disposal income, money in people's pockets and families and, again, an increase of 3.4 percent. In the last quarter it was 2.2 percent. So we're seeing back-to-back quarters of strong growth in disposal income. And as I said, that's a reflection of jobs, but it's also a reflection of the increased social assistance benefits.

The savings ratio. At times of uncertainty, people save more. We saw it during the GFC and we have even seen it in a more pronounced level during this crisis. 22.1 percent last quarter - 18.9 percent in this quarter. Importantly, as the restrictions are being eased, as confidence is coming back, Australians will continue to spend and that money on the balance sheet which we saw both in the disposal income slide but also in terms of savings ratio means that there is money there to be spent in the coming months. This is a comparison of what has happened to the economy year on year, and as you can see, Australia at 3.8 percent, has outperformed nearly every other major economy. Performance has been better than the European nations; France and Germany and also the United Kingdom. It's been better than Japan, Canada and New Zealand, and it obviously, you know, reflects the success that we're also having on the health front as well where the momentum is really picking up. Are there any questions?