The third quarter GDP data released this morning was better than many had been expecting with a 3.3% q/q lift which leaves us 3.8% down for the year. This brings to an end the official recession after Q1 and Q2 were both negative, although this is largely meaningless given the scale of the recovery still required.
After the sharp decline last quarter in household consumption (the largest single component of GDP) this quarter saw a sharp rebound, up 7.9% and adding 4 ppts to growth. For the fourth quarter in a row Private CAPEX subtracted from GDP (-0.1 ppts). Public sector consumption and investment (which added 0.3 ppts and zero respectively) provided some additional growth to offset a sharply negative result from net exports which deducted 1.9 ppts.
With household spending recovering so strongly it is perhaps not surprising to see the household savings rate fall slightly, although at 18.9% this still remains very elevated.
The ABS Q3 data for Queensland has State Final Demand up 6.8% q/q for a year-on-year increase of 0.7% (after a 6.1% q/q fall in Q2). This result is the best of all the States and supports our contention that QLD has been benefitting from its better health outcomes through the latter part of this year.
This quarter the private sector saw some large increases with household consumption up 11.6% q/q (which resulted in a year-on-year increase of 0.8%…the only State to see a positive for the year) and private CAPEX up 3.5% q/q (reversing a trend of three consecutive quarter of declines). Although the Public sector managed to grow this quarter (up 0.2% q/q) it was the private sector that has been the driver behind Queensland’s recovery this quarter.
However, as the chart makes clear, growth in recent years (such as it has been) in the domestic QLD economy has been coming almost exclusively from the Public Sector and this quarter’s result does little to change that story. The total private sector is still 1.2% below the level seen two years ago while the Public sector (which is equal to approximately 40% of the Private sector), over the same period, has increased by 12.7%.
As the country has eased restrictions in recent months we were always going to see a significant rebound in GDP in this quarter. However, all of the data currently available, such as Payrolls and Mobility, suggests that we are looking at a slow grind up throughout 2021.
How the recovery plays out from here will continue to depend on future health outcomes and the emergence, and up-take of, any new vaccines. The fiscal stimuli that the Federal and State governments have put in place will start to be unwound through the early part of 2021 (indeed some are already being wound back) and we will have to watch carefully the effect that might have on recovery.