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Economists shocked as Aussie GDP released

Treasurer Josh Fryenberg, Australian pedestrians wearing face masks in Christmas shopping.
Australia's economic scorecard is in, and it's better than expected. (Sources: Getty)

The Australian economy contracted 1.9 per cent between late June and September, as domestic lockdown dampened economic activity.

The Australian Bureau of Statistics (ABS) released the latest national accounts figures on Wednesday morning, finding Australia’s Gross Domestic Product (GDP) was up 3.9 per cent through the year.

Australia’s two most populous states, NSW and Victoria, along with the ACT, were in lockdown for most of the September quarter, with shops, restaurants and recreation shuttered for all business, except takeaway and click and collect.

“Domestic demand drove the fall, with prolonged lockdowns across NSW, Victoria and the ACT resulting in a substantial decline in household spending,” ABS acting head of national accounts Sean Crick said.

“The fall in domestic demand was only partly offset by growth in net trade and public sector expenditure. GDP in the September quarter 2021 was 0.2 per cent below the December quarter 2019 pre-pandemic level."

The contraction follows a 0.7 per cent rise in the June quarter, and a 1.8 per cent climb in the March quarter.

GDP fall more gentle than expected

Economists had been bracing for a 2.5 per cent contraction, which would have marked the second-largest slide since the ABS began recording GDP in 1959. The largest contraction was in the June 2020 quarter, when GDP slumped 7 per cent during the national lockdown.

However, while household spending fell 4.8 per cent, net trade offset the slide slightly, with mining and rural commodities exports increasing.

In locked-down NSW and Victoria, household spend fell 8.4 per cent, compared to the 0.7 per cent slip seen across the rest of Australia.

At the same time, the household-savings-to-income ratio jumped from 11.8 per cent to 19.8 per cent, as millions of Australians were forced to stay home to combat the Delta variant.

"The household saving ratio was below the previous peak of 23.6 per cent in the June quarter 2020, when national lockdowns drove a larger decline in household spending compared with this quarter," Crick added.

Treasurer Josh Frydenberg said the results "confirmed what we already know", noting that it is the third largest quarterly contraction on record.

"Today's national accounts are very much a lockdown story," he said.

"[They] reveal the stark difference in outcomes experienced between those jurisdictions that were in lockdown and those that were not.

"The New South Wales economy contracted by 6.5 per cent, the ACT's economy, by 1.6 per cent. Victoria's economy, by 1.4 per cent. While growth in the other five states and territories continued to rise, up 1.6 per cent, collectively for the quarter."

Shadow treasurer Jim Chalmers described the figures as showing the "costs of Morrison's mistakes and mismanagement".

"National accounts show third-biggest economic downturn on record (-1.9 per cent) and Australia had worst-performing economy of the 28 advanced countries which have reported September quarter so far," he said in a statement on Twitter.

Omicron lies ahead

While Australia has largely reopened, the Omicron variant is “already disrupting economic reopening”, ratings agency Standard & Poor’s said on Tuesday.

"We are still in the throes of a global pandemic and new variants continue to pose risks to economic recoveries," it said in a briefing note.

“While living with the virus has reduced COVID's impact on the economic outlook, new outbreaks of unknown severity cast a shadow on this narrative.”

However, Montgomery Investment Management chief investment officer Roger Montgomery believes Australia remains in a “great position” to tackle any problems in the new year.

“Employment’s going to be low and in the absence of the Omicron issue, immigration would return,” he told Yahoo Finance.

“We’ll get students coming back to Australia … and we’ll start bringing in 200,000 low- and high-skilled immigrants, and they will alleviate pressure on wages.

“That will bring down wage pressures that are inferred on consumer prices, and we end up with growth, low inflation, low interest rates and that’s a goldilocks environment for innovative growth stocks.”

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