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  Latest
Differences between the Foreign Exchange Market and Stock Market May 23, 2022
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Economic Flows in Australia, March 2021

News Feed by News Feed
June 2, 2021
in Economics
Reading Time: 3 mins read

Key Points:

  • The Australian economy rose 1.8% in seasonally adjusted chain volume measures
  • Through the year GDP rose 1.1%
  • The terms of trade rose 7.4%
  • Household saving ratio decreased to 11.6% from 12.2%

Australian economy rose 1.8% in March quarter

Gross Domestic Product (GDP) rose 1.8% this quarter, reflecting the continued easing of COVID-19 restrictions and the recovery in the labour market. The level of economic activity is now 0.8% above December quarter 2019 pre-pandemic levels and has grown 1.1% in through the year terms.

Strong growth in the terms of trade

The terms of trade rose 7.4% this quarter and is at its highest level since December quarter 2011. Stronger export prices, particularly for iron ore and LNG, drove the quarterly rise. The strength in the terms of trade contributed to a 3.5% increase in nominal GDP.

Private demand drives growth

Domestic final demand contributed 1.6 percentage points to GDP growth. Private investment contributed 0.9 percentage points and household final consumption expenditure contributed 0.7 percentage points.

Private investment records strongest rise since September quarter 2017

Private investment rose 5.3% in March quarter to be 3.6% higher through the year, the first through the year rise since June quarter 2018. Both business and housing investment increased, supported by government initiatives and improved confidence.

Business investment was driven by a 11.6% rise in machinery and equipment, the strongest increase since December quarter 2009. Dwelling investment rose 6.4% with increased construction activity on renovations and detached housing, coinciding with the federal government’s HomeBuilder scheme.

Household spending on services continues to recover

Household expenditure rose 1.2% this quarter, but remained 1.5% below December quarter 2019 pre-pandemic levels.

Spending on services (+2.4%) drove the quarterly rise. Hotels, cafes and restaurants, recreation and culture and transport services continued to rebound as movement and trading restrictions eased. Spending on services remains down on pre-pandemic levels, particularly those impacted by the closure of international borders.

Spending on goods declined 0.5% this quarter, but remained at elevated levels. Expenditure on both food (-1.4%) and alcoholic beverages (-3.9%) fell, reflecting a shift towards dining out as restrictions eased.

Household saving ratio remains elevated

The household saving to income ratio declined from 12.2% to 11.6% and remained at elevated levels. Saving fell as growth in household consumption outpaced the rise in gross disposable income.

Gross disposable income rose 1.0% in the quarter. Compensation of employees rose 1.5%, reflecting increases in employment and hours worked as economic activity continued to recover. This was partly offset by a decline in benefit payments as additional COVID-19 support wound back.

Increased demand drives gross value added (GVA)

Easing restrictions and increased confidence drove a 1.5% rise in GVA this quarter, with increases in 15 out of the 19 industries. Government incentives on residential building contributed to a 4.4% rise in Construction. Rental, Hiring and Real Estate Services rose 5.3% driven by confidence in the housing market and low interest rates.

Transport, Postal and Warehousing, Accommodation and Food Services and Arts and Recreation Services, industries heavily impacted by the pandemic, continued to rebound this quarter as restrictions eased. Despite this, the activity in all three industries remains below pre-pandemic levels.

Compensation of employees (COE) rises with underlying activity

COE rose 1.5% this quarter with a 2.4% rise in private COE, reflecting increased employment and hours worked. Public COE fell 1.6%, reflecting redundancies paid by universities in the previous quarter. Public COE remained 3.6% higher through the year.


Source

Tags: AUD
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