Brings together key ABS economic statistics to provide a summary of the recovery in the Australian economy during the December quarter 2020.
This article presents insights into government support (section 2), changes in key aggregate national statistics over the quarter (section 3), industry recovery (section 4) and recovery in the states and territories (section 5) during the December quarter 2020.
As with the March quarter, June quarter and September quarter articles, it highlights some of the new data and analytical insights that the ABS produced in response to COVID-19.
By 31 December 2020, the world had around 82 million confirmed cases of COVID-19 (up from 34 million at the end of September) and around 1.8 million deaths attributed to the virus (up from 1 million at the end of September).
In Australia, by 31 December 2020, there had been around 28,000 confirmed cases of COVID-19, with around 5% of these in the last 3 months of 2020 (the December quarter 2020). This highlighted the extent to which Australia managed to contain the second wave of infections in the September quarter, when around 68% of Australia’s cases in 2020 occurred, the majority in Victoria.
As the COVID-19 pandemic unfolded, the Australian economy contracted in the first half of 2020. In response, the June quarter 2020 saw unprecedented levels of economic support by governments and the Reserve Bank of Australia.
The Australian economy gradually re-opened in the September quarter 2020, with economic growth (as reflected in state final demand) in all states and territories apart from Victoria. This recovery was tempered by second wave impacts (particularly in Victoria), continued international travel bans, restrictions on some domestic travel, and continued effects from social distancing.
The last quarter of 2020 saw a second quarter of economic recovery as the Australian economy continued to reopen, particularly in Victoria. Lockdowns in the December quarter were more localised and shorter, reducing their economic impact. Economic support from governments and the Reserve Bank of Australia continued, though reduced from the unprecedented high levels in the June and September quarters.
Industry recovery continued to be variable in the December quarter, with some services industries (such as Accommodation and food services) continuing to be particularly affected by restrictions.
The differences in recovery were less pronounced between the states and territories than in the September quarter, given the pace of recovery in Victoria and the further easing of restrictions in some other states and territories.
Between the September and December quarters:
There was a second consecutive quarter of strong recovery in chain volume Gross Domestic Product (GDP), employment and hours worked;
The level of GDP recovered by 3.1% ($14.9 billion) in the December quarter, following the 3.4% ($15.7 billion) rise in the September quarter, but remained 1.1% ($5.6 billion) below December quarter 2019;
Employment increased by 310,000 people (2.5%) and hours rose 3.8%. Employment in December remained 0.9% below March and hours were down by 1.6%;
The Consumer Price Index increased by 0.9%, following the 1.6% increase in the September quarter, more than recovering from the largest fall in the series in the June quarter (when it fell 1.9%);
The balance on goods and services rose by $4.4 billion to $18.1 billion (with exports continuing to be greater than imports, but less so than the June quarter, when the surplus was $22.1 billion);
Household income decreased by 3.1%, household consumption increased by 4.3% and the household savings ratio decreased further from 22.0% in the June quarter but remained elevated at 12.0% (compared to 7.9% in March); and
The total net operating balance across all levels of government recovered from -$94 billion to -$40 billion, with reduced Commonwealth government expenditure on COVID-19 support packages (particularly JobKeeper).
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The COVID-19 period saw the fastest and largest fiscal response to an economic event in Australian history, with around a thousand policy interventions announced across all levels of government by the end of 2020. Expenditure on the JobKeeper wage subsidy alone totalled around $83 billion by 31 December 2020, compared to total Commonwealth government expenditure of $57 billion on all stimulus policies in response to the 2008 to 2009 Global Financial Crisis (GFC).
The classification of the policies in macroeconomic statistics can be found here. The ABS has grouped them into five broad categories:
In addition to the fiscal government policy responses, in the December quarter, the Reserve Bank of Australia monetary policy responses were also considerable. In addition to maintaining a historically low target of 0.1% for both the cash rate and the yield on 3-year Australian Government bonds, the RBA maintained the increased size and other parameters of the Term Funding Facility.
More information on how the economic responses from Australian governments were reflected in ABS economic statistics can be found in Economic measurement during COVID-19: Selected issues in the Economic Accounts.
The JobKeeper wage subsidy continued to account for the majority of government business support in the December quarter, though total payments for the second iteration of the program were lower than previous quarters ($11.9 billion, down from $35.8 billion in the September quarter and $35.1 billion in the June quarter).
The Boosting Cash Flow for Employers support also reduced in the December quarter, down to $6.7 billion, from $13.5 billion in the September quarter and $14.6 billion in the June quarter. Information on the extent of JobKeeper and Boosting Cash Flow for Employers support for each industry can be found in Government support for business, published with the National Accounts.
Other COVID-19 related subsidies, including those made by state governments, added an additional $3.7 billion in fiscal support in the December quarter.
The reduced scale of JobKeeper and Boosting Cash Flow for Employers, both classified as subsidies on production, meant that taxes received from production and imports was greater than subsidies paid ($27.7 billion), following the reverse in the previous two quarters. This figure was still well below the March quarter 2020, when it was $50.3 billion, because subsidies on production were still considerably larger than pre-pandemic levels.
Total taxation revenue (across all levels of government) generally falls in the March and September quarters and increases in the June and December quarters. This pattern continued in 2020 but with a much-reduced increase in the June quarter (2.4%, compared to 13.1% in June 2019), a smaller fall in the September quarter (a fall of 9.8%, compared to 16.4% in September 2019), and a larger increase in the December quarter (a rise of 16.0%, compared to 13.2% in December 2019).
In annual terms, taxation revenue was 1.3% higher than a year earlier, having been 8.3% down in the June quarter and 1.1% down in the September quarter. Total Commonwealth government taxation revenue was 2.2% higher than December quarter 2019, while state and local government taxation revenue was down 2.7%.
Between the September and December quarters, the total general government net operating balance recovered from -$94 billion to -$40 billion. This reflected a rise in government revenue, and a decrease in government expenditure ($219 billion, down from the highs of $255 billion in the June quarter and $253 billion in the September quarter).
Reduced Commonwealth government expenditure on COVID-19 support packages was the major contributor to the rise in the net operating balance.
Source: Government Finance Statistics, Australia, December 2020
For a second consecutive quarter, Western Australia was the only state where state and local governments had a positive net operating balance. Victoria recorded the largest decrease in its net operating balance over the year (-$4.6 billion in December quarter 2020, compared to a slightly positive $0.2 billion in December 2019), reflecting a continuation of COVID-19 related subsidies and health services in the state.
Australian chain volume Gross Domestic Product (GDP) fell in both the March and June quarters, with the 7.0% fall in the June quarter being the largest since the series began in 1959. In the September quarter, GDP grew by $15.7 billion, or 3.4%, the largest quarterly increase since March 1976, followed by a further increase in the December quarter of $14.9 billion, or 3.1%. This was the first time in the over 60-year history of the Australian National Accounts that GDP grew by more than 3.0% in two consecutive quarters.
Despite these two consecutive quarters of strong GDP growth, GDP remained 1.1% below December quarter 2019, and around the level of GDP in June quarter 2019. GDP per capita was weaker, down 1.8% over the year, reflecting a 0.7% increase in the population.
Domestic final demand (the sum of final consumption and investment, by both private and public sectors) contributed 3.2 percentage points to GDP growth in the December quarter. Household final consumption expenditure contributed 2.3 percentage points as constraints on households and businesses continued to lift. Private investment contributed a further 0.7 percentage points to growth.
After falling by 7.7% in the June quarter, private demand rose by 4.1% and 2.9% in the September and December quarters.
In addition to GDP, the National Accounts also presents additional economic aggregates, including real gross domestic income (RGDI) and real gross national income (RGNI). These measures provide additional insights into changes in Australia’s material living standards.
RGDI measures the purchasing power of incomes generated through the domestic production of goods and services. In contrast to GDP, RGDI increased by 0.5% through the year, reflecting the increase in the terms of trade (up 7.4%). This increase in the terms of trade was driven by an increase in prices received for Australian exports, most notably iron ore (up 37.1%). Often referred to as the ‘trading gain’, the increase in the terms of trade means that additional purchasing power is generated from each unit of Australian domestic production destined for export.
RGNI builds on RGDI and captures the impact of income flows between Australia and the rest of the world. RGNI grew by 2.1% through the year, which was stronger than RGDI, reflecting lower payments of property income to non-residents, driven by lower interest payments and dividends paid to foreign investors. This result can also be seen in the improvements to the current account surplus.
A possible conclusion is that the economic recovery was sufficient to return average material living standards to pre-pandemic levels, since RGNI grew significantly faster than population through the year to the December quarter 2020.
Through the year analysis however does not capture the cumulative impact of lower economic activity through 2020. This is captured by analysing year-on-year growth, which compares the cumulative level over the year against the previous year.
GDP, GDP per capita, RGDI and RGNI all recorded declines in the 2020 calendar year, on a year-on-year basis. The stronger terms of trade and lower payments of property income to non-residents did not offset weaker GDP for RGDI and RGNI as was the case in through the year terms. Growth across all these aggregates was weaker than the equivalent through the year measures. This reflects the cumulative impact of the unprecedented fall in June quarter 2020 GDP, when the COVID-19 pandemic had its most severe impact.
International travel restrictions continued in the December quarter. The changing pattern of overseas arrivals and departures had a profound impact on business conditions across the June, September and December quarters. These impacts particularly affected economic activity related to tourism and higher education.
The year ending January 2020 saw a record 9.5 million visitors arrive in Australia, prior to the progressive implementation of travel restrictions. Tighter restrictions affecting all international travel from 20 March resulted in a dramatic fall in visitor arrivals into Australia, of close to 100%, with only 5,400 visitor arrivals in the month of June, 3,700 in September and 8,800 in December (99.2% below December 2019).
The number of international students arriving in Australia remained low, at around 230 people during December, down from 38,700 (-99.4%) in December 2019. This was the highest number since border restrictions were introduced, and was up from October (130 people) and November (150 people).
The continued impact of dramatically reduced international arrivals was evident in the export of services, which were 41.6% below December quarter 2019. This was particularly pronounced for travel services, down 54.7% on the previous December quarter. Education-related travel services partially buffered these shocks, given most international students had already arrived in Australia prior to the COVID-19 pandemic and related travel restrictions taking effect.
The December quarter saw the 12th consecutive surplus in the balance on goods and services (a trade surplus) and a seventh successive current account surplus. The surplus increased from $13.7 billion in the September quarter to $18.1 billion in the December quarter, but remained below the recent high of $22.1 billion in the June quarter.
The December quarter 2020, was driven by strong exports of Australia's metal ores and cereal grains (following favourable growing conditions in late 2020). Imports grew as demand for consumption goods increased, while the Commonwealth Government's instant asset write-off led to increased demand for capital goods.
(a) Seasonally adjusted estimates at current prices.
Source: Balance of Payments and International Investment Position, Australia, December 2020
Australia's net international investment liability position (which measures the stock of Australia's foreign financial liabilities minus foreign financial assets at a point in time) decreased by $2.4 billion between 30 September 2020 ($949.7 billion) and 31 December 2020 ($947.2 billion).
Australia's net foreign debt liability position increased by $2.7 billion to $1,165.3 billion, and Australia's net foreign equity asset position increased $5.1 billion to $218.1 billion.
'Net IIP' refers to the net international investment liability position (i.e. Australia's foreign financial liabilities minus foreign financial assets).
The Financial Account deficit increased by $4.3 billion to $9.8 billion in the December quarter 2020, driven mainly by Australian funds increasing the purchase of foreign financial assets. This follows the March and June quarters of 2020, which saw superannuation funds, in particular, selling off foreign equity holdings to provide liquidity for the COVID-19 Early Release of Superannuation program. The increase in December quarter 2020 was partially offset by strong foreign investment in Australian government securities.
In the June quarter, lockdowns, business restrictions and social distancing saw unprecedented falls in employment and hours, and an increased number of people reporting they had insufficient work or zero hours. As restrictions eased across most parts of Australia in the September and December quarters, employment and hours increased strongly.
By the end of December, Labour Force statistics showed employment recovering to sit 0.9% below March (compared to 6.7% below in May, part way through the June quarter). As more people returned to work or had their hours increased, hours worked recovered from the 10.4% fall between March and May, to remain 1.6% down in December. The underemployment rate fell over this period, from a record high in April (13.8%) to 8.5% in December, around its pre-pandemic level.
In April 2020, an estimated 1.8 million employed people in Australia worked fewer hours than usual or no hours at all due to economic reasons (that is, due to having no work, not enough work available or being stood down). By December, this had reduced to 461,000 (though higher than 345,000 in December 2019).
Employed people who worked zero hours for economic reasons also fell significantly over the period, from a peak of 767,000 in April to 65,000 in December (compared to 40,000 in December 2019).
During the June quarter, restrictions also had a significant impact on participation. A large number of people left the labour force between March and May, resulting in the participation rate falling from 65.9% to 62.6% in May, the lowest since June 1999.
The participation rate recovered through the December quarter, boosted by the strong recovery in employment, and also unemployment in October, as people resumed active job search and had increased availability to work. Over the December quarter, the national unemployment rate declined, from 6.9% in September to 6.6% in December.
Following an unprecedented 43.2% fall in job vacancies between February and May, job vacancies recovered strongly. Between May and November, vacancies increased by 96.9%, ending 11.9% higher in November than February 2020. This highlighted the pace of economic recovery in the September and December quarters.
Private sector vacancies doubled between May and November (following a 44.9% fall in May), and were 13.2% higher than February. This recovery was more pronounced than in the public sector, where vacancies were 1.6% above February (with public sector vacancies falling by 29.0% in May and increasing by 43.0% between May and November).
Following a 2.8% increase in the June quarter and 3.3% increase in the September quarter, household gross disposable income fell by 3.1% in the December quarter. Non-labour income continued to be the largest contributor to changes in household income, which included a 13% fall in gross mixed income and a 13% fall in social assistance benefits (which remained 22% above the March quarter).
After falling by 1.5% in the June quarter, the compensation of employees showed strong recovery across the September and December quarters, increasing by 1.7% and 1.0%, as many employees returned to their jobs.
The unprecedented fall in household spending in the June quarter (12.3%) was largely reversed in the September and December quarters by the two largest rises in the history of National Accounts (7.9% and 4.3%). These quarterly rises reflected increased spending as COVID-19 restrictions eased. Consumption nevertheless remained weak through the year, down 2.7%.
Services were the largest driver of increased household spending (increasing by 5.2%, following an increase of 9.8% in the September quarter) with consumption of goods increasing by 2.8% (and 5.1% in September). There was strong demand across all the broad consumption categories.
The ongoing recovery in spending on hotels, cafes and restaurants (17.5%) and recreation and culture (9.1%) drove overall household consumption growth, particularly as Victoria eased restrictions in the December quarter.
Spending on discretionary services remained subdued through the year, driven by weakness in transport services (-78.1%) and hotels, cafes and restaurants (-29.8%). COVID-19 travel restrictions as well as capacity limits for hospitality venues, public events and office attendance continued to impact these individual categories.
The further recovery in household spending coincided with low price growth. The CPI increased by 0.9% in the December quarter, following the increase of 1.6% in the September quarter, more than reversing the fall of 1.9% in the June quarter. The large fall in the June quarter (the largest quarterly fall in the 72-year history of the CPI) was mainly driven by the temporary introduction of free childcare and reduced demand for automotive fuel.
The December quarter CPI was primarily impacted by a 12.5% increase in tobacco excise and the introduction, continuation (e.g. HomeBuilder grants) and conclusion (e.g. childcare fee subsidies) of a number of government schemes.
Increased demand for new dwellings resulted in a 0.7% price increase. This would have been higher, but was partially offset by the Commonwealth government's $25,000 HomeBuilder grant, and similar $20,000 grants by the Western Australian and Tasmanian state governments.
The most significant price fall was in electricity (-7.5%) after the Western Australian Household Electricity Credit provided households with a one-off $600 credit, resulting in a fall of 66.7% in Perth electricity prices. The housing group in the CPI fell by 0.9% over the year, the most significant fall since 1998, driven by utilities (-6.6%) and rents (-1.3%).
The CPI increased by 0.9% between December 2019 and December 2020, which was half of the annual growth rate at December 2019 (1.8%). The trimmed mean measure remained at a record low of 1.2%.
In the December quarter, the household saving to income ratio declined further from its record high in the June quarter, but remained elevated at 12.0%. The fall was driven by the further recovery in household consumption, outpacing income growth.
New housing loan commitments increased strongly across the December quarter. Owner occupier housing loan commitments were at historically high levels, underpinned by record low interest rates. There was particularly strong growth in commitments for the construction of new dwellings, which coincided with the implementation of the HomeBuilder grant.
During the quarter, the value of owner occupier home loan commitments across all states and territories, with the exception of the Northern Territory, were at or around record high levels.
The value of new loan commitments for fixed term personal finance recovered to finish the quarter around 1.3% higher than December 2019. Personal finance to support the purchase of road vehicles recovered to above pre-pandemic levels (12.6% above December 2019), which provided a further indication of the extent of recovery in global supply chains, given the disruption to new car imports in the June quarter.
Source: Lending indicators, January 2021
The early recovery in the September quarter varied by industry, which continued in the December quarter. The recovery in the level of Gross Value Added (GVA) remained weakest in the Transport, postal and warehousing and Administrative and support services industries.
Payroll jobs data in the quarter continued to show that the Accommodation and food services industry had recovered the least from employee job losses, with Arts and recreation services and Information media and telecommunications also heavily impacted in the quarter. Impacts on hours worked were greatest in the Arts and recreations services, Other services and Accommodation and food services industries.
JobKeeper and Boosting Cash Flow for Employers continued to provide support to affected industries in the December quarter. Information on the extent of support for each industry can be found in Government support for business, published with the National Accounts. It showed that JobKeeper payments relative to compensation of employees were highest in Arts and recreation services and Accommodation and food services industries, but down on the September quarter.
Given the strong growth in household consumption, the December quarter saw a second quarter of strong growth in quarterly retail turnover, supported by elevated levels of online retail sales.
Business conditions improved progressively through the December quarter, with the ABS survey on the business impacts of COVID-19 showing further declines in businesses reporting decreases in revenue and/or modified operations.
Across the March and June quarters, 16 of the 19 industries recorded falls in GVA. The Accommodation and food services and Arts and recreations services industries were the most impacted at that stage, with GVA 43.4% and 26.0% below their December quarter 2019 levels.
Across the September and December quarters, 18 of the 19 industries saw increases in GVA. Compared to the December quarter 2019, almost half of industries (nine of the 19 industries) had higher GVA, with growth in GVA in Agriculture, forestry and fishing particularly strong, as the industry recovered from the drought. The bumper harvest (with a 45.8% increase in grain output) contributed to Farm GDP rising by an historically high amount (33.3%) and cereal exports rising 117.7% in the December quarter.
Of the 10 industries with GVA lower than December quarter 2019, Transport, postal and warehousing was the most impacted (down 16.8%), followed by Administrative and support services (down 14.0%) and Accommodation and food services (down 13.2%).
Changes in hours worked by industry in the quarterly Labour Account presented a related but weaker picture of industry recovery through the December quarter. Hours were higher than in the December quarter 2019 in five of 19 industries, with annual growth in hours strongest in Health care and social assistance (8.0%) and Finance and insurance services (4.8%).
Of the remaining 14 industries, hours worked in the Arts and recreations services remained the most impacted (23.7% below December quarter 2019), followed by Other services (-17.6%) and Accommodation and food services (-15.6%).
Weekly payroll jobs data provided week-to-week insights into how the pandemic affected industries. This new data showed that, by industry, there were three broad groups of impacts for most of the pandemic:
Since payroll jobs data is a relatively short time series, the ABS is not yet able to produce seasonally adjusted data. It is therefore difficult to compare data at the end of the December quarter, given how seasonal the summer months are in Australia, particularly leading up to Christmas. By the end of November, nine of the 19 industries had more payroll jobs than in mid-March.
In the June quarter 2020, the ABS temporarily reinstated the Labour Price Index (LPI) to provide insights into the influence of the subsidies on labour costs. The LPI complements the Wage Price Index, which excludes subsidies.
The LPI showed that the industries most affected by the pandemic saw their labour costs fall the furthest and were the slowest to return to pre-pandemic levels. While the largest increases in labour costs over December quarter 2020 were recorded in the Other services (15.6%), Accommodation and food services (13.0%), and Arts and recreation services (12.9%) industries, these were returning from large falls in the LPI in June quarter 2020. As shown in Figure 22, labour costs for these industries remained the furthest from their pre-COVID levels.
The two industries least impacted by COVID-19 business restrictions and therefore less likely to access fiscal support (Electricity, gas, water and waste services and Mining) saw labour costs return to pre-COVID index levels in the December quarter.
Footnote: index points change refers to the difference between the specified quarter and March quarter 2020.
Source: Labour Price Index: Changing labour costs through COVID-19, Dec 2020
The September quarter saw the largest quarterly increase in retail turnover in the 37-year series, increasing by 6.5%, following the large fall of 3.5% in the June quarter. There was a further large rise in the December quarter (2.5%), which took the annual growth to 6.4%, much higher than the annual growth at December quarter 2019 (0.5%).
This annual growth was underpinned by 12.8% growth in retail turnover in Victoria in the December quarter, as the retail industry started to recover from the impacts of the second wave restrictions in the September quarter.
Household goods retailing remained at an elevated level and rose to a new peak in November, above the earlier peak of the May-July period. Retailers reported particularly strong growth in spending by households on electrical and electronic goods.
Online retail sales remained elevated during the December quarter, but decreased from the peak in August (when Stage 3 and 4 restrictions were in effect in Victoria, especially in Melbourne). In through-the-year terms, online retail sales were 70.4% higher in October, 67.1% higher in November and 55.0% higher in December.
The early signs of national recovery, seen across most economic statistics during the September quarter, were tempered by second wave impacts in Victoria. The December quarter was characterised by the easing of restrictions in Victoria, coupled by strong economic recovery in the state. Easing of restrictions were also seen in other states and territories, such as Tasmania.
As a result, the relative differences between the recovery of states and territories during the December quarter was less pronounced than it had been in the previous quarter, including in state final demand, employment and hours worked.
In the June quarter, all states and territories saw a fall in state final demand. In the September quarter, Victoria was the only state or territory to record a further fall in state final demand. All states saw a rise in in state final demand in the December quarter, with Victoria recording a large quarterly increase of 6.8%.
In the September quarter, three states and territories had a higher level of state final demand than in December quarter 2019 (Queensland, the Northern Territory and the Australian Capital Territory). By the December quarter 2020, this increased to six states and territories, with New South Wales and Victoria the only states with lower levels of state final demand than December quarter 2019 (down 0.7% and 3.4%).
Further analysis of the relative impact of the effect of the different COVID-19 containment measures across the states and territories on state final demand and state household consumption can be found in State economies and the stringency of COVID-19 containment measures.
In the September quarter, the second wave impacts in Victoria resulted in pronounced differences in employment and hours compared to the rest of Australia. Hours worked in Victoria were particularly impacted in September, down 14% from March.
In the December quarter, employment recovered rapidly in Victoria, and by December all states and territories were in a range between 2.2% below and 0.5% above March 2020, except for the Northern Territory, which came off a recent peak in employment in March 2020.
In the December quarter, hours worked also recovered rapidly in Victoria, but remained noticeably weaker than the other states and territories, other than the Northern Territory. In December, hours worked in Victoria were still 5.0% below March, with the other five states grouped between New South Wales (1.3% below March) and Queensland (0.9% above March).
The December quarter was a second quarter of strong recovery for the Australian economy, underpinned by further easing of restrictions – particularly in Victoria – and continued economic support from governments and the Reserve Bank of Australia, though at a reduced level.
The extent of impacts and recovery continued to vary by industry, though state and territory differences were much less pronounced than in the September quarter, when the Victorian economy was particularly hard hit.
The lead authors of this article, Bjorn Jarvis and Jacqui Jones, would like to recognise the contributions of analysis provided by teams across ABS economic statistics, including the teams who worked on the National Accounts, International Accounts, labour statistics, prices statistics, government financial statistics, lending finance statistics, retail trade, business demographics and migration statistics.
We would like to thank the business and household survey respondents who continued to respond to our surveys during this challenging period. Without their cooperation we would not have been able to produce this wide range of economic information and insights.
Finally, we would also like to thank other organisations that have made additional data available to the ABS to enhance the measurement of the Australian economy during the COVID-19 period, such as the Australian Taxation Office, that has enabled the production of new weekly payroll statistics.
The ABS may publish further overviews of the Australian economy in this analytical series and also hopes to explore additional topics in 2021.