Daily Commentary BY THE CURVE TEAM –

GDP Surge

4th of March, 2021

GDP beat expectations for Q4 driven by one key component and with slack remaining in certain areas.

GDP for Q4 was up 3.1% for the quarter, which leaves it 1.1% higher than pre covid levels. Consumption was the big driver of growth, which is unsurprising given covid acutely effected people’s ability to spend.

The rebound in consumption following easing restrictions led to another gain in Q4 of 4.2%, contributing 2.3% points to growth and leaving it 2.7% for the year. There is nuance to consumption though, with goods spending is up 3.45% for the year whereas services are down 5.49%.

This is supported by certain industries such as tourism, hospitality and transport all still struggling relative to other industries and pre covid levels. It also poses an upside over the coming year and beyond, with household saving still high at 12% and vaccine distribution opening up the possibility of more international and domestic travel.

Investment was also another driver of growth, with a rise of 8.9% in machinery and equipment spending and 4.1% for dwellings. Government schemes, namely the instant asset write off and HomeBuilder programme were likely instigators of these.

Victoria also poses another clear upside for GDP. Victorian growth surged 6.8% for the quarter as consumption rose 10%, but it remains 3.4% smaller than last year. Victoria recovering to pre covid levels seems realistic and would pose an instant boost to GDP.

Today more data is released, with trade balance and retail sales for February. Both will be pertinent given the GDP release yesterday, which showed the trade balance knocked off 0.1% points to growth for the quarter and goods spending remained a strong point.

Josh Stewart

Associate - Money Markets