Australian economy surges 3.4% in Q4 as consumers splurge

Australia's economy rebounded strongly last quarter as the lifting of coronavirus lockdown measures unleashed a wave of consumer spending. PHOTO: REUTERS

SYDNEY (REUTERS) - Australia's economy rebounded strongly in the fourth quarter of last year as the lifting of coronavirus lockdown measures unleashed a wave of consumer spending, momentum which should help underpin growth through the current bout of geopolitical stress.

Data from the Australian Bureau of Statistics out on Wednesday showed gross domestic product (GDP) jumped 3.4 per cent in the fourth quarter from the third, when it slid 1.9 per cent.

That topped market forecasts of 3 per cent, while growth for the year accelerated to a rapid 4.2 per cent.

The upbeat data support the Reserve Bank of Australia's (RBA) optimistic outlook for the economy outlined in its monthly policy statement on Tuesday.

Lowe recently said it was plausible a first rate rise could come later this year if the economy continues to recover.

Financial markets were pricing in a hike as early as June but have pushed that out to July in recent days as the Russian invasion of Ukraine darkened the global outlook.

Indeed, markets have sharply scaled back the expected pace of tightening in the United States, Britain and Canada, and are even toying with the idea of renewed stimulus in the European Union.

Analysts assume the direct impact of the war on Australia will be limited given it has few trade ties with Russia and Ukraine, and could even benefit from higher commodity prices given it is a major exporter of liquefied natural gas and coal.

Australians have also built a big buffer of cash in the last year or two with the household savings rate at a still-high 13.6 per cent in the December quarter.

They have not been afraid to splash out with household consumption surging 6.3 per cent in the quarter and adding 3.2 percentage points to GDP.

Liberated from lockdowns, consumer spending on clothing rose 42 per cent, transport 49 per cent, hotels and restaurants 24 per cent, household goods 7.7 per cent and recreation 17 per cent.

On the downside, business investment disappointed, while government spending and trade were also small drags on growth.

Total output for the year reached A$2.17 trillion (S$2.14 trillion) in current dollars - about the same as Russia's GDP before the latest collapse in the rouble. Annual growth in nominal terms up a whopping 10.2 per cent, pointing to a windfall for government tax revenue.

All signs are the recovery has continued, with retail sales jumping a hefty 1.8 per cent in January despite an outbreak of the Omicron variant of Covid-19, while banks are reporting that spending on cards last month was well up on last year.

Unemployment has dropped to a 13-year low of 4.2 per cent and looks likely to fall under 4 per cent for the first time since the 1970s.

"The conditions for a further strong recovery remain in place," said Capital Economics senior economist Marcel Thieliant. 

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