Household spending was hit by lock-downs but not as bad as feared.
SYDNEY, Dec 1 Reuters -- Australia's economy slammed into reverse last quarter after the Delta outbreak put half of the population in lock down, though a speedy recovery is already underway as world-beating vaccine rates set Sydney and Melbourne free.
The emergence of the Omicron strain is a new threat to the outlook, but with 87% of the adult population now double dosed, the government is determined to keep the economy open.
The damage done by self-imposed shut downs was too obvious to see in Wednesday's report on gross domestic product GDP, which showed output fell by a steep 1.9% in the third quarter.
That was still better than the markets forecasts of a 2.7% decline and relatively moderate compared to the 6.8% slump last year when the pandemic first struck.
The annual growth slowed to 3.9%, but beat forecasts of 3.0% in the second quarter, and analysts were optimistic that the loss would be quickly recouped.
Marcel Thieliant, a senior economist at Capital Economics, said that GDP will surpass its pre-Delta peak this quarter and keep surprising to the upside next year.
With the household savings rate jumping to 19.8%, there's huge scope for consumption to recover over the coming quarters, he said.
Savings had been fattened by government support payments and stock dividends, as well as the enforced curb on spending, according to the Australian Bureau of Statistics.
In the third quarter household consumption fell by 4.8% to overshadow strength in government spending and net exports.
Retail sales soared by 4.9% in October as restrictions were lifted. The data from bank cards shows that November was a strong month, culminating in a bumper Black Friday for retailers.
There was a big increase in savings and a surprisingly resilient labour market, where payrolls recovered all their lock down losses in October.
The house prices went up 22% in the year to November, as a result of the boom in spending power. The median home has gone up an average of $2,436 $1,737 every week for the past year.
The Reserve Bank of Australia RBA seems determined to keep interest rates at a record low of 0.1% for some time, which is a stimulant for super-loose monetary policy.
The central bank holds its last policy meeting next week and is expected to indicate that no hike is likely until at least 2023, according to the central bank.
Markets are betting that a move could come in early as July next year due to the spike in global inflation, but price pressures are not nearly as hot as with the main GDP measure of domestic inflation going up 2.3% in the year to September.