The Australian economic recovery remained strong in the March quarter with GDP up 1.8% – seven reasons for optimism

June 2nd 2021

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Key points

  • With a growth of 1.8% in the March quarter, Australian GDP is now back above its pre-pandemic level.check_circle
  • While uncertainties remain – including around the latest coronavirus outbreak in Victoria – there are seven reasons for optimism that the recovery will continue at a decent rate: vaccines; global growth is ramping up; consumer spending is well supported; dwelling investment is likely to remain strong; business investment is strengthening; fiscal stimulus is continuing, and monetary policy remains ultra-easy.



After a far stronger than expected rebound from the national pandemic lockdown through the second half of last year, Australian growth slowed a bit in the March quarter but is now above its pre-pandemic level. This note looks at the outlook.


The recovery has slowed but continues

The March quarter saw GDP growth slow but to a still very strong 1.8% quarter on quarter. The gain was driven by a 1.2% rise in consumer spending with a rotation back to services spending (up 2.4%) offsetting a fall back to more normal goods spending (down 0.5%), a 6.4% rise in dwelling investment, a 3.6% gain in business investment and a 0.8 percentage point contribution from inventories offsetting a detraction from trade.


aus economic recovery 1
Source: ABS, AMP Capital


This saw growth up 1.1% on a year ago and GDP has now made it 0.8% above its pre-pandemic high in December quarter 2019. As can be seen in the next chart, the economy has effectively traced out a Deep V style rebound. With growth averaging over 3% over the September and December quarters some slowing in the pace of recovery was inevitable as the easy gains from economic reopening are behind us. What’s more, various snap lockdowns across most states impacted over the last quarter. With the reopening gains behind us, the Victorian snap lockdown and potentially others impacting this quarter and some sectors remaining slower to recover – notably travel and higher education given closed international borders – the pace of growth is likely to slow further over the year ahead.


aus economic recovery 2
Source: ABS, AMP Capital


The ongoing hit to immigration means it will take longer for Australia to regain its pre-virus trend compared to other countries that normally have relatively lower immigration levels.


Australia has performed relatively well

That said, Australia has performed comparatively well through the pandemic. While China is ahead, Australia is one of the few developed countries with GDP back above pre-pandemic levels.


aus economic recovery 3
Source: OECD, ABS, AMP Capital


This reflects a combination of better control of coronavirus – which meant lower hospitalisations and deaths, less severe lockdowns and less self-regulation limiting mobility – and a good well-targeted policy response that protected incomes, jobs and businesses. Countries with less coronavirus related deaths like Australia have had better GDP outcomes.


aus economic recovery 4
Source: ourworldindata, OECD, ABS, AMP Capital


Seven reasons for optimism on Australian growth

Our Australian Economic Activity Tracker – based on weekly data – has continued to trend higher into this quarter and remains strong relative to our US and European Trackers.


aus economic recovery 5
Source: AMP Capital


Uncertainties remain: Australia is vulnerable to new coronavirus outbreaks given the low level of vaccination (just 17% versus 51% in the US and 59% in the UK) as highlighted by the problems in Victoria; some parts of the economy are a long way from normal, and tensions with China could escalate further. However, there are seven reasons for optimism that recovery will continue at a decent rate.


aus economic recovery 6
Source: Bloomberg, AMP Capital



aus economic recovery 7
Source: ABS, AMP Capital



aus economic recovery 8
Source: ABS, AMP Capital



Concluding comment

We expect GDP growth through this year of 5% and 3.5% next year. This in turn should underpin an ongoing rebound in corporate profits which, along with continuing low-interest rates, will underpin a still rising trend in the Australian share market – notwithstanding the risk of a correction in the next few months. Key risks to keep an eye on are: coronavirus outbreaks; a likely further near term inflation scare; and tensions with China.


If you have any questions about this please contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.