By James Glynn
SYDNEY--Australia's economy roared back to life in the fourth quarter, as strong consumer spending and rapid rehiring by companies consigned a pandemic-induced recession at the start of the year--the country's first in nearly 30 years--to history.
The resource-rich economy grew 3.1% in the fourth quarter, leaving national output down just 1.1% from a year earlier, the Australian Bureau of Statistics said Wednesday. Economists had expected GDP growth of around 2.3% in the quarter.
The growth outcome is far superior to forecasts that emerged earlier in 2020 when it was extremely unclear how long the Covid-19 virus would stall activity.
Consumer spending is playing a big part in lifting the economy, as many households saved the huge wave of fiscal stimulus delivered by Canberra during the deep uncertainty of the country's health crisis.
Those funds are now being spent, and the household savings rate dropped to 12% in the fourth quarter from 18.7% in the third quarter.
Australia's economy looks to have grown strongly in the opening months of this year, fanned by the Reserve Bank of Australia's pledge to keep official interest rates low until at least 2024, which has helped companies begin to rehire, while also sparking a rush on property.
Helped by its distance from major population centers overseas, Australia has been able to largely contain Covid-19, though harsh lockdowns are still being implemented when fresh cases are discovered.
"The forward looking indicators of the economy continue to look good, particularly those related to the labor market," said Gareth Aird, head of Australian economics at the Commonwealth Bank of Australia.
"The vaccine rollout means the domestic economy should have clean air from Covid-19 by late 2021," Mr. Aird said.
The pace of Australia's recovery has created tension in financial markets as traders have begun to question the RBA's guidance that interest rates will need to stay low for a number of years yet.
Government bond yields jumped last week, forcing the central bank to respond with expanded bond buying. RBA Gov. Philip Lowe said Tuesday the bank will continue to target low bond yields to support the economy, and will do whatever is required to achieve its goals.
House prices have jumped in recent months. Property research group Corelogic reported Monday that prices rose nationally by 2.1% in February, the biggest monthly rise in 17 years. The jump has triggered a debate about whether a regulatory response will soon be needed to cool off mortgage lending.
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