Australians are shopping their way out of the sharpest economic downturn since the 1930s.
The country’s biggest retail bank said a surprisingly strong lift in spending by its millions of card customers over recent weeks suggests the economy will buck pessimistic Treasury forecasts and expand strongly through the September quarter.
Amid fears the COVID-19 recession would stretch to three straight quarters for the first time since the 1980s, Commonwealth Bank head of Australian economics Gareth Aird said he now expected real GDP would grow by 2 per cent, versus an earlier forecast that the economy would stall.
While growth in the order of 2 per cent is not the economic “snapback” Scott Morrison had hoped for when the country was riding high in June on an earlier than expected national reopening, it would still be the fastest quarterly expansion since 1995, when the economy grew by 2.3 per cent seasonally adjusted.
Mr Aird said he “had expected to see a modest rebound in household consumption over (the third quarter) as a lift in expenditure outside Victoria was partially offset by the lockdown-induced contraction in spending in Victoria”.
“But what has surprised us is the strength of spending outside of Victoria,” he said.
Weekly spending on CBA cards since June had been “materially” above the second quarter, Mr Aird said, averaging year-on-year growth in the order of 6.5 per cent versus around -3.5 per cent. Spending on the likes of homewares has stayed strong, while other areas such as entertainment have shown solid growth, even as they remained down on a year earlier.
By state, Queensland and Western Australia had led the growth in card spending.
“We now expect real household expenditure to post a chunky 5 per cent increase over the September quarter, following the 12.1 per cent contraction in the June quarter.”
The analysis chimes with profit figures from retailer Harvey Norman, which on Monday revealed sales had surged by an incredible 30 per cent over the 11 weeks to mid September.
The sharply upgraded outlook comes as the government grows more confident that Victoria’s shutdown won’t overwhelm a recovery outside the economically devastated state.
Treasury’s most recent estimate that national GDP would flatline or even contract through the September quarter is increasingly looking too downbeat.
The Prime Minister on Sunday said he expected the economy to add hundreds of thousands of jobs by Christmas, and walked back on official forecasts that the unemployment rate would approach 10 per cent.
Labour force figures released last week shocked economists when they showed the robust jobs recovery extended into a third month despite the drag from Victoria, with the unemployment rate plunging to 6.8 per cent from 7.5 per cent.
Despite warnings from Josh Frydenberg that the jobless measure would continue to climb in coming months, Mr Aird said unemployment had now peaked and would drift lower to 6.6 per cent by December.
As Victoria’s draconian lockdown measures appear to be suppressing the second wave of infections, allowing some easing of restrictions outside of Melbourne, the further lifting of restrictions through the final three months of the year would help national GDP lift by a further 1.8 per cent, alongside an increase of 140,000 jobs, Mr Aird said.
With expectations for an earlier recovery, Australia’s economy will shrink by 3.3 per cent in 2020, versus a previous estimate for a fall of 4.3 per cent.