Broker UBS upgraded its Australian GDP forecast on Monday to 4.2 per cent in 2021, from 3.8 per cent, factoring in an expected consumer spending tailwind. That follows an estimated contraction of 2.7 per cent in 2020.
“On the official figures, Chinas economy expanded at the fastest pace in two years last quarter,” said Capital Economics’ Julian Evans-Pritchard.
Along with a pick-up in industry and construction in the fourth quarter to 6.8 per cent from 6.0 per cent the largest contributor to China’s GDP was the service sector which jumped to 6.7 per cent year on year from 4.3 per cent, according to the Capital economist.
Quarter-on-quarter growth of 2.6 per cent was supported by a rebound in key areas, with industrial production up 7.3 per cent in the month of December alone, retail sales up 4.6 per cent, and fixed asset investment up 2.9 per cent.
The expansion in the final three quarters of the year more than offset a 6.8 per cent first-quarter contraction, as China fought back against the onslaught of COVID-19 in the world by locking down more then 50 million people living in the province of Hubei.
The December quarter also follows the weakest period of activity since the end of the Cultural Revolution in 1976, according to NAB.
Australia has also had considerable success in controlling the virus and is on track for a thumping 2021, with economists forecasting growth of 7.5 per cent for the 12 months to the end of June 2021, according to the median forecaster participating in The Australian Financial Review’s December quarter economist survey.
The budget update issued in December anticipated growth of 4.5 per cent in 2021 compared with 2020; the Reserve Bank’s forecast is 6 per cent for the year to the June quarter, and 5 per cent for the year to the end of December 2021.
A rebound in consumer spending is expected to again be a key driver of growth this year if the Chief Medical Officer is right and overseas travel is off limits to 2022. Retailers are already seeing the benefit of some of this expected spending and are releasing extraordinarily strong trading updates as JB Hi-Fi on Monday showed.
UBS is expecting savings to fall “given the massive build-up of deposits from left-over fiscal stimulus” and worth about 9 per cent of annual GDP. At the height of the pandemic, the savings rate soared to nearly 20 per cent in Australia as the economy contracted by 7 per cent.
UBS concludes the performance of the Australian economy last month was materially stronger than it had expected: it is now expecting the economy to recover to pre-COVID-19 levels by the end of June.
Capital economist Julian Evans-Pritchard says the largest contributor to China’s GDP was the service sector. 
Commodity producers were lower in Monday’s trading session after a strong run. Of the iron ore giants, BHP Group fell 2.9 per cent to $45.45, Fortescue dropped 1.4 per cent to $24.82 and Rio Tinto lost 1.4 per cent to $118.97. The losses weighed on the benchmark and the ASX fell 0.8 per cent to 6663.
The Australian dollar retreated a touch as well, trading just below US77¢ as the US dollar found some buyers as investors fretted about the prospects of incoming President Joe Biden’s mega stimulus plan.
However, some Asian stocks fared a bit better, with China’s CSI up 1.1 per cent and the Hang Seng up 0.9 per cent as investors eyed the rebounding Chinese economy.
The International Monetary Fund forecast in October that emerging and developing economies in Asia will grow at 8 per cent in 2021. Japan an advanced economy will grow at a more sedate 2.3 per cent, the IMF forecasts.
For China, too, consumers were expected to underpin growth in 2021, said Kevin Xie, an economist at Commonwealth Bank, who upgraded his growth forecast for 2021.
China is now expected to grow by 9.2 per cent year-on-year in 2021, up from 9.1 per cent. Economists surveyed by Bloomberg expect growth of 8.2 per cent this year.
“The national vaccine rollout and continued effective containment measures will support our view that recovering consumption will drive growth in 2021,” the CBA economist said. “Our revisions mainly reflect base effects. We expect growth momentum to slow in 2021 because of less supportive fiscal and monetary support.”
With Robert Guy

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