Australia’s economic growth lifted a thumping 3.4% in the December quarter, the strongest quarterly growth since 1976. That result, delivered courtesy of higher household spending supported by a draw down of household savings, fed an annual economic growth rate of 4.2%.
As ever, gross domestic product (GDP) data contains a wealth of information about the state of the Australian economy and how it is growing and progressing.
The headline data demonstrates that measured on a quarterly basis by aggregate value – the red line in the chart below – growth has returned pretty much to the pre-pandemic trend. The jagged nature of the red line and the parts of which it is sum shown on the blue bars have been on a roller coaster ride, the like of which has never been seen before.
Despite the various challenges the economy has faced – the pandemic came after bushfires and now seems bookended by floods – at the end of 2021, the Australian economy was 3.4% larger than pre-pandemic levels.
That is, the DQ’21 GDP of $521.9 billion was 3.4% greater than the DQ19 GDP of $504.8 billion.
These are all very strong results, and the data tells us the December quarter result was delivered primarily by Household Consumption expenditure, with growth at 3.2% for the period. This is shown in the chart below, with very little else making a positive contribution to growth over the quarter.
There is much sense in this, because after successive rounds of lockdowns (as occurred in the September quarter) and an inability to spend on services (as distinct from goods) like holidays and other experiences, the nation was flush with savings and spent up big.
This was evidenced by a reduction in the household savings ratio from 19.8% to 13.6% in the December quarter, as the ABS pointed out. This is shown below and is of special interest because the data demonstrates how massively household savings increased over the pandemic. We can speculate that this has helped drive investor involvement in the housing sector in particular.
Further support for this can also be observed below – where household debt to income and debt to disposable income ratios barely moved, despite the significant growth in house prices.
As the chart demonstrates, the ratios for interest on housing as a proportion of income fell to historic lows over the same period. Where did households store much of their savings? In their mortgages it seems.
The income, wages and wages versus profit share components of the quarterly growth data are addressed later in this edition of Statistics Count.
