GDP recovery well on track Q1 +1.8% q/q

The first quarter GDP data released this morning was better than many had been expecting with a 1.8% q/q lift which (after some small upward revisions to previous quarters) takes us to 1.1% up from the same period a year ago. Over the past 4 quarters GDP remains down 2.4%.

Household consumption (the largest single component of GDP) saw a sharp slowdown from the support-led surge in previous quarters but was still up 1.2% q/q which added 0.7 ppts to growth. The recovery in Private CAPEX we noted last quarter continues and has added 0.8 ppts to growth (its highest contribution since Q3 2017 and the 5th highest in a decade). Public sector consumption and investment (which subtracted 0.1 ppts and added 0.2 ppts respectively) provided some small additional growth. This was offset by a subtraction of 0.6 ppts from net exports with imports knocking off 0.7 ppts.

The household savings rate eased a little to 11.6%; but this remains elevated on a historical basis suggesting the potential for further running down of savings contributing to continued household consumption strength in coming quarters.

The ABS provide us with quarterly data for State Final Demand, which is the domestic component of the state’s economy. Data for Gross State Product (which includes the international and inter-state elements) is only available from the ABS on an annual basis; the most recent data for 2019-20 showed an annual decrease of 1.1%. However, the QLD Treasury provide quarterly estimates for Gross State Product (albeit rather delayed) and we are currently waiting to see their Q4 data.

The ABS Q1 data has QLD State Final Demand up 0.4% q/q for a year-on-year increase of 3.0% (after a revised 1.9% q/q, 2.3% y/y rise in Q4).

This quarter the private sector slowed sharply after spiking last year as the recovery took hold and total private sector was up just 0.3% q/q. The public sector took up some of the slack, particularly public sector capital spending which was up 3.4% and saw total public consumption up 0.7% q/q.

As the chart below makes clear, growth in recent years (such as it had been) in the domestic QLD economy had been coming almost exclusively from the Public Sector and the final 2 quarter’s of last year have done little to change that story. The total private sector is now just 2.4% above the level seen two years ago. The Public sector (which is equal to almost 40% of the Private sector), over the same period, has increased by 9.1%.

As the country has eased restrictions in recent months we were always going to see a significant rebound in GDP in the second half of 2020. As we noted last quarter, the sugar-hit growth would inevitably slow and the recovery from here on in is likely to see us return to a more ‘normal’ trajectory over coming quarters.

How the recovery plays out from here will continue to depend on future health outcomes and the roll-out and up-take of vaccines. The fiscal stimuli that the Federal and State governments have put in place have now been largely wound back and the economy is returning to standing on its own two feet. However, the current lock-down in Victoria will certainly shave some activity off the second quarter data and serves to remind us all that this pandemic, and its economic effects, is far from over yet.

 

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