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Economics update | 3 June 2022
03 Jun 2022
Robust economic growth in the March quarter, despite omicron and flooding
Despite strong headwinds from the COVID omicron outbreak and flooding in Queensland and NSW, the economy showed solid growth in the March quarter 2022, with the ABS National Accounts released earlier this week showing Gross Domestic Product (GDP) increased 0.8% in the March quarter to be 3.3% for the year.
The growth was powered by household and government spending, which increased 1.5% in the quarter, stimulated by discretionary spending on travel, hotels, restaurants and cafes, recreation and cultural activities as COVID restrictions were steadily eased over the quarter. People appeared confident that economic conditions were improving and were prepared to spend, with the household savings rate down 2 percentage points to 11.4%. While down, household savings remain elevated relative to its pre-COVID average of 5%, with these high savings likely to support increased household spending over the year.
The increase spending also reflects higher household gross disposable income, which was up 0.6% on the back of an increase in compensation of employees, a reflection of growing employment and increased pressure on wages. Compensation of employees was up 1.8% in the quarter, 5.5% for the year, and contributed 0.8 percentage points to GDP in the quarter.
The increased spending was also reflected in strong import growth, with imports up 8.1%, passenger cars (up 32%) and household electrical items (up 30%) were the major contributors. In contrast exports fell 0.9%, as mining production slowed and exports of commodities fell.
Gas prices
Spot market gas prices have surged in the east coast market over the past few weeks following the failure of NSW gas retailer Western Energy and increasing demand as we move into the cooler months. In late May, the Australian Energy Market Operator (AEMO) was forced to use its authority to cap spot market gas prices in NSW, Queensland and Victorian markets at $40 per gigajoule. Manufacturers on contract rates typically pay less than $10/GJ.
These extreme spot market gas prices are well beyond the reach of most commercial and industrial gas users. Unless a solution to these high gas prices can be found in the next few weeks many gas-reliant manufacturers may be forced to close their doors.
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