GDP rose 3.1% in seasonally-adjusted quarter-on-quarter terms in Q4, benefiting from the easing of trading and travel restrictions in Victoria, as well as strong fiscal and monetary stimulus. The result beat market expectations and followed Q3’s 3.3% expansion. Meanwhile, on an annual basis, the economy shrank at a softer pace of 1.1% in Q4, following Q3’s 3.7% contraction. Looking at 2020 as a whole, GDP fell 2.4%, ending an almost 30-year streak of uninterrupted growth and contrasting the 1.9% expansion recorded in 2019.
Q4’s positive reading was driven by a continued recovery in domestic demand, which more than offset a slightly negative contribution to growth from the external sector. Private consumption expanded 4.3% (Q3: +7.9% s.a. qoq) amid further job gains and recovering consumer confidence. In addition, growth in fixed investment accelerated (Q4: +3.6% s.a. qoq; Q3: +0.5% s.a. qoq), as tax incentives boosted business investment in machinery and equipment and dwelling investment continued to rise, benefiting from the HomeBuilder program. Meanwhile, government spending growth lost pace (Q4: +0.8% s.a. qoq; Q3: +1.5% s.a. qoq).
The external sector, meanwhile, dragged slightly on the economy, as imports growth outpaced the increase in exports. Exports expanded 3.8% in Q4 (Q3: -4.0% s.a. qoq), buttressed by skyrocketing foreign sales of cereals and a robust increase in shipments of mineral fuels and rural products. Imports grew 4.9% in the quarter after plummeting 9.6% in Q3, mainly due to a rise in purchases of transport equipment. Overall, the external sector subtracted a marginal 0.1 percentage points from growth.
Commenting on the outlook, Robert Carnell, regional head of research at ING, stated:
“The strength of this recovery isn't going to change the RBA's monetary stance, but it might cause markets to once more question the appropriateness of that stance. […] By ending [the year] on such a strong note, the arithmetic has shifted to favour strong growth for 2021 as a whole, with our preliminary tweaking of the numbers pointing to 2021 growth of around 4%. Continued vaccine rollout will also help this process to play out.”
FocusEconomics panelists project GDP to expand 3.2% in 2021, which is unchanged from last month’s estimate. In 2022, the economy is seen expanding 3.3%.