Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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Australian GDP: Recovery just getting started

Australia’s real GDP in 3Q20 rebounded 3.3% QoQ but remains down 3.8% YoY. Key points:

  • Australia’s recovery, whilst better than the expected 2.5% QoQ, substantially trailed the US’ 7.4% QoQ and -2.9% YoY and Eurozone’s 12.6% QoQ and -4.4% YoY, so the YoY declines are similar (Figure 2).
  • The recovery was held-back by Victoria’s lockdown and surging imports. Victoria’s Gross State Final Demand (SFD) – a slightly different measure to GDP – fell 9.8% YoY. Ex-Victoria, SFD fell just 1.4% YoY (Figure 1). Imports resurged 6.5% QoQ, driving overall net exports to take 1.9% off GDP.
  • Consumption rebounded 7.9% QoQ but remained down 6.5% YoY. Services rose 9.8% QoQ but still fell 12.1% YoY, led by Transport
    (-82.2% YoY) and Hotels & Restaurants (-40.2% YoY).
  • Investment was weak: Business construction fell 4.9% QoQ and 9.6% YoY, while equipment fell 3.7% QoQ and 13.0% YoY. Residential stabilised at 0.6% QoQ but fell 7.6% YoY. Inventories stabilised after rapid liquidation.
  • Government spending continued at a high level: Spending rose 1.4% QoQ and 7.8% YoY, and Investment rose 0.3% QoQ and slid 0.2% YoY.
  • Looking ahead, factors driving a V-recovery include: i) Re-openings and vaccine rollouts; ii) a consumer boom given recovering employment, a record 18.9% saving rate (Figure 4), tax cuts and low rates; iii) resurging investment driven by operating profit up 14.4% YoY (Figure 6), major tax incentives and strong balance sheets; iv) farm sector recovery from a 13-year low (Figure 7); and v) rebounding exports on Asia’s V-recovery.
  • Early 4Q20 trends are extremely positive: October retail sales rose 7.3% YoY, vehicle sales ex-Victoria rose 9% YoY, dwelling approvals rose 14.3% YoY and business confidence rebounded to +5, up a z score of 0.8.

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