Australian Economy Recovers Strongly

A decent bounceback led by household spending in 3Q20 will take pressure off the Reserve Bank of Australia (RBA) to deliver more monetary easing.

Full year 2020 growth will fall less than 3%

3Q20 GDP grew by 3.3% from the previous quarter, a bit stronger than the 2.5% "guesstimate" from forecasters (ING f 2.5%), though there was a fairly wide spread of estimates, and the consensus probably didn't contain much information.

Assuming that our 1.5% QoQ forecast for 4Q20 is on the mark, this should deliver a contraction for the full year of only 2.9% - an improvement on the 3.2% fall we had previously been pencilling in, and a robust performance when compared with other developed economies.

Together with ongoing improvements in the labour force (notwithstanding the small hiccup in the last unemployment rate release), this should also ease the Reserve Bank of Australia's plight. They have remained under some pressure to keep delivering more easing. Sure, there can be further tweaks to the yield curve control and quantitative easing programmes - a wider pool of assets can be considered than Australia's shallow government and state bond markets - but all sensible monetary tools have now already been deployed. Anything further is just finesse in our opinion.

Contributions to QoQ GDP growth (pp)

 

Source: CEIC, ING

Household consumption in the driving seat

The breakdown of GDP by expenditure shows that households are the main force behind the recovery, with a 4 percentage point contribution to the 3.3% total - not a bad outcome when you consider that this period overlaps with lockdowns in the state of Victoria, so this could provide some further pent up demand in 4Q as these lockdowns ended in October.

Inventory rebuilding played its part in the upside surprise in these figures, contributing a further 0.8ppt, though we should probably not expect such a large contribution in 4Q. 

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