Australia posts faster than expected recovery as stimulus kicks in

Annual output shrinks 1.1%, underscoring havoc wreaked by the coronavirus pandemic and suggesting policy support will still be needed to maintain economic recovery

Australia posts faster than expected recovery as stimulus kicks in
Australian consumer spending led the charge, with a 4.3% gain over the previous quarter, although down from the 7.9% third-quarter growth rate. The public sector helped, too, with a 0.8% quarter-on-quarter increase. File photo by Reuters.  

(ATF) Australia's economy expanded at a much faster-than-expected pace in the final quarter of 2020, data showed on March 3, helped by massive monetary and fiscal stimulus.

The economy accelerated 3.1% in the three months to December, the Australian Bureau of Statistics (ABS) said, higher than forecasts for a 2.5% rise.

"The data confirm a solid rebound in activity in the fourth quarter," Barclays economist Rahul Bajoria said.

Annual output still shrank 1.1%, underscoring the havoc wreaked by the coronavirus pandemic and suggesting policy support will still be needed for the A$2 trillion ($1.57 trillion) economy.

Consumer spending led the charge, with a 4.3% gain over the previous quarter, though down from the 7.9% growth rate of 3Q20. And the public sector helped too, with a 0.8% QoQ increase 

"Even accounting for the tail-wind of a post-Covid bounce-back, this was a strong result," Robert Carnell, head of Asia-Pacific research at ING, said. 

AUSSIE DOLLAR RISES

The Australian dollar rose to a day's high of $0.7836 after the data, while bond futures nudged lower with the three-year contract implying a yield of around 0.3% compared with the official cash rate of 0.1%.

"The ‘V-shaped’ nature of the recovery is everywhere to see – economic growth, the job market, retail spending and the housing market," Craig James, Sydney-based chief economist at CommSec, said.

Meanwhile, Australian services continued to expand but at a slower pace, figures released on March 3 showed. The IHS Markit Australia Services Business Activity Index eased to 53.4 in February from 55.6 in January. Any reading over 50.0 signifies expansion.

Both business activity and incoming business saw moderate increases, the data showed, while an upturn in demand encouraged new hirings at the quickest pace on record. 

“The Australian services sector remained well inside expansion territory in February, despite softer increases in both activity and new orders,” Usamah Bhatti, IHS Markit economist, said.

With reporting by Reuters

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