GDP growth rose 3.3% in the September quarter 2020 – the largest quarterly rise since 1976 and at the upper end of market expectations. Growth was supported by the lifting of COVID-19 restrictions outside of Victoria and continued government support.

The rise in GDP growth this quarter largely reflects a record rise in household consumption, with both goods and services spending rising. Household income growth again held up this quarter supported by the reopening of the economy and government payments. Hours worked rose 4.4% in the quarter. Despite the improvement in consumption, the household saving ratio remains around record highs at 18.9%. Government spending also contributed to growth in the quarter.

Net exports was the largest detractor from growth in the quarter (driven by a rise in imports with demand for consumption goods lifting as restrictions were eased, and a fall in exports due to reduced demand for Australia’s mining commodities and international travel bans). These data pre-date the most recent escalation of trade tensions with China.
New business investment fell for the sixth consecutive quarter, while housing investment rose slightly after falling the previous eight quarters. Reviving business investment will be key to a sustainable recovery going forward.

An increase in non-financial sector profits of 3.9% in the quarter reflected more than $50 billion of government payments to businesses, including JobKeeper. Given this, unsurprisingly the increase in profits was highly correlated with industries that have experienced the biggest falls in production since COVID hit, such as accommodation and food services, and arts and recreation services.

The September quarter data takes in all the Stage 3 and 4 restrictions in Victoria, which commenced in early July. Restrictions began to be lifted in Victoria at the end of September and the forthcoming December quarter data be supported by a rebound in Victoria.

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