SYDNEY — Australia’s economy surged back to life in the fourth quarter of 2021 as consumer spending jumped following the end of delta-related lockdowns that crippled major eastern states.
The economy expanded 3.4% over the quarter, taking gross domestic product growth through 2021 to 4.2%, the Australian Bureau of Statistics said Wednesday.
The commodity-rich economy contracted 1.9% in the third quarter of 2021 as economic activity in New South Wales and Victoria, the country’s two biggest states, slowed to a crawl amid efforts to contain the delta variant of COVID-19.
As the economy regathered momentum, unemployment has fallen to its lowest levels in more than a decade and spurred bets that the Reserve Bank of Australia will raise interest rates by the middle of this year.
Still, the RBA warned on Tuesday that the war in Ukraine has added more uncertainty to an already murky economic outlook. Australia is likely to have some economic benefits as the conflict pushes up commodity prices, but soaring fuel prices are also set to crunch household budgets.
Private demand contributed 3.0 percentage points to GDP in the fourth quarter of last year, supported by a 6.3% rise in household final consumption expenditure.
Household spending on both goods and services rose, with recreation and culture, cafes and restaurants and clothing and footwear experiencing strong rises,” the statistics bureau said.
Generous fiscal and monetary stimulus to soften the blow of the pandemic has driven up household savings over the last year, making consumer spending the key to recovery through 2022.
Household spending in New South Wales, Victoria and the Australian Capital Territory rose 9.6% while the rest of Australia rose 1.6%, the ABS said.
As a result, the household saving-to-income ratio fell to 13.6% in the fourth quarter from 19.8% in the third.
While the omicron variant continues to affect the economy in 2022, state governments have chosen not to implement lockdowns, allowing the economy to operate at close to normal levels.
Still, with unemployment heading down to its lowest levels since the 1970s, the tightening of the labor market is starting to curtail private investment, which fell 1.4% in the quarter, the ABS said.
“Private investment was impacted by shortages of labor and construction materials, which saw dwelling investment decline 2.2% despite high levels of dwelling approvals in recent quarters,” the ABS said.