We all know that the Australian economy showed some remarkable resilience through the pandemic punches, growing by 0.6 percent in the June quarter. This growth just barely beat economists’ expectations and offered a ray of hope after a lackluster showing earlier in the year. Earlier this month the Australian Bureau of Statistics (ABS) came out with some surprise good news, a 0.2 percent increase in GDP per capita. This increase is a rebound from the dip we experienced in the March quarter.
Tropical Cyclone Alfred impacted the southern Queensland and northern New South Wales coasts in early March. Despite this intensive storm’s impact on severe economic activity, economic growth surged back in the second quarter. The ABS attributed the drop in the last quarter to reductions in state government spending on health and transport infrastructure investment. They further pointed out a decrease in federal defense spending.
Key Drivers of Growth
Household consumption became the bedrock of growth, rising 0.9 per cent in the June quarter. The ABS reiterated that this increase was supported by several elements, including seasonal sales and the release of new models.
“End of financial year sales and new product releases contributed to rises in discretionary spending on goods including furnishings and household equipment, motor vehicles and recreation and culture goods,” – Mr. Lay.
Government spending was a key driver, increasing by 1 percent over that period. Private sector businesses had to add value in order to compensate for the loss of government investment. Private nonresidential investment didn’t kick start either, growing just 0.1 percent.
The Impact of Tropical Cyclone Alfred
Yet we cannot underestimate the impact of Tropical Cyclone Alfred on the economy. The storm wreaked havoc on economic and individual livelihoods in southern Queensland and northern New South Wales. In turn, public investment suffered a deep blow.
This follows on from the ABS’ shocking 3.9 percent collapse in public investment. That was the biggest drop in almost eight years, other than during the COVID drought. This prolonged downturn highlights the need for more stable state and federal investments. Overall, this will lead to more sustainable economic growth.
Looking Ahead
Despite these challenges, defence spending remains elevated on an annual basis, indicating ongoing commitments to national security. Weakness in homebuilding has caused concern about growth paths ahead. This is on the back of the record levels of activity recorded in the March quarter.
“Economic growth rebounded in the June quarter following subdued growth in the March quarter, which was heavily impacted by weather events,” – Tom Lay.
Australia is still in the thick of pursuing its own positive economic trajectory. The attention probably will shift to increasing investments and addressing the impact of increasingly severe weather events to continue this momentum.
