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Thursday, 3 December 2020

Economy bounces off the bottom

Economic rebound begins

The Aussie economy grew by 3.3 per cent in the September 2020 quarter, which was the strongest quarterly result since 1968.

Household consumption rebounded by 7.9 per cent, following the dramatic plunge in the June quarter, alone accounting for a 4ppts contribution to GDP.

Of course, this came off the back of the June quarter shutdown, and a more realistic picture shows that GDP was 3.8 per cent lower through the year. 

Nominal GDP growth recorded a broadly similar year-on-year result, remaining deeply in negative territory.

There was a welcome further lift in the terms of trade, and this uptrend will continue in the December quarter since the iron ore price has now surged to six-year highs. 

Real gross national income has been somewhat less heavily impacted, and was close to flat year-on-year.

Household stimulus

Interest payments on dwellings continued to decline yet further as record low mortgage rates feed through the system, taking much-needed pressure off household balance sheets.

Stimulus-driven real household income surged again in Q3 (+3.3 per cent), just as it did in Q2 (+3.5 per cent), bolstering buffers for when the fiscal stimulus is wound back. 

Indeed, the derived household saving ratio remained extraordinarily high for a second consecutive quarter at 18.9 per cent. 

The wrap

The Aussie economy troughed out in the June quarter, and the second half of the calendar year looks set to notch a solid rebound as the virus has been effectively eradicated in the Antipodes, a far cry from what seemed likely as recently as August. 

I actually (genuinely) dozed off during the Reserve Bank Governor's Opening Statement to the House of Reps, but the bit I saw suggested that the economic recovery is a likely to track better than previously expected, and the Aussie unemployment rate will now likely peak somewhere in the 7s, rather than at the 10 per cent once feared.

Despite this, the RBA has pledged to keep the cash rate glued to the zero lower bound for at least the next three years, and will focus on actual inflation outcomes (rather than forecasts or projections) before any tightening is contemplated or warranted. 

More detail as ever from data wizard James Foster here