Wayne Cole

SYDNEY (Reuters – Australia’s economic recovery was aided by strong exports, government stimulus spending and a rebound in activity following the coronavirus lockdowns.

Although gross domestic product (GDP), still suffered the second-largest contraction in recorded history last quarter, trade and public spending can provide a quick 1.7 percent point boost to ease some of the suffering.

Due Wednesday is the GDP report. The forecast shows a 2.7% drop. That is less than the 7.0% contraction that occurred after the pandemic.

Again, the virus is responsible for the drop. It closed Victoria and New South Wales states for most of the quarter. This also hampered consumer spending.

It was a good thing for the economy that the government provided emergency aid, which saw public spending increase by A$3.5 billion (or 2.50 billion), to GDP.

Australia saw real net exports increase by 1.0 percentage point to its GDP, thanks in part to a stronger resource export market and lower import volumes.

Due to an 8.8% increase in exports, the country’s current accounts surplus rose to A$23.9 trillion in quarter 2.

Even though the surplus was larger, Australian companies, especially miners, gave out more in dividends after an excellent earnings season.

In any event, an economic revival is underway already as the world’s highest levels of vaccination allow most restrictions to be removed, unleashing a surge in demand.

As shops reopened in October, retail sales soared by 4.9%. This splurge was continued, according to banks in November. CBA reported that CBA’s spending for cards during the week ended November 26th was 24% greater than it was in the prior week, 2019 just before the pandemic.

The labor market is also surprising resilient, with payrolls rising to levels above the pre-lockdown level in October. This was well ahead of what we expected.

Omicron may be a danger. Government delays opening international borders by 2 weeks. Stay-at-home rules, however, are unlikely, as 87% adult population has been fully vaccinated.

($1 = 1.3998 Australian dollars)

($1 = 1.3994 Australian dollars)