Over the next three weeks more proof will show of Australia’s great health and economic response to the global pandemic. The latest short, sharp shut-down in Victoria should contain the small Covid-19 outbreak in that state quickly. An orderly and well-planned vaccine roll-out starts next week promising the beginning of the end of the pandemic. A range of economic statistics culminating in the Q4 GDP report on March 3 will show that Australia suffered less than most in 2020 and is in sight of recovering the economic activity lost during the pandemic, an achievement still a long way off for most major economies.

Taking health first, the latest Covid-19 outbreak centred on returning traveller hotel quarantine in Melbourne and necessitating a new state lock-down is a disappointing development and one that will cause softer GDP growth in Q1 than would otherwise have been the case. On the positive side the quick and hard response by the Victorian State Government will provide best opportunity for contact tracing and quarantining of close contacts to bring the outbreak under control and the earliest possible return to more normal daily life and economic activity.

Of the many lessons authorities in various countries are learning in the global pandemic one of the more important is that going in hard with quarantining and restrictions at the earliest sign of a Covid-19 outbreak provides best opportunity to contain an outbreak and in turn the best economic outcome.

This important lesson was learned far too late in many countries and after community Covid-19 infection rates had risen too far. Patchy containment measures struggled and have had to become semi-permanent features of life causing extended and deep economic damage. Britain provides an example of the economic damage from belated and patchy containment measures to the pandemic health crisis and has recorded in 2020 -9.9% GDP its biggest annual GDP fall since 1709.

The European Union, -5.1% GDP fall in 2020 and the United States, -2.5% also reported big annual falls in GDP although at least in the case of the USA GDP was growing in Q4 albeit force-fed on the biggest dollop of government money ($US4 trillion in train ahead of the additional $US1.9 trillion Biden proposal) since World War II.

Australia’s GDP also fell in 2020, but by around 2%, a comparatively modest amount by international comparison and providing enviable opportunity to recover to peak GDP level pre-Covid-19 by mid-2021. The actual Q4 GDP result will be reported on March 3 with several contributions to the quarterly GDP result reported in the week or so before.

Q4 real retail sales were reported earlier in February and showed a 2.5% q-o-q increase pointing to a 2% or more increase in Q4 household consumption expenditure. Q4 construction spending and private new capital expenditure are due next week and are both likely to improve on Q3 readings of respectively –2.6% q-o-q and –3.0% q-o-q. Construction spending may lift 1% q-o-q or more in Q4 boosted by much stronger residential construction.

Q4 international trade and net export data are due the day before the Q4 GDP release and based on the big monthly trade surpluses during the period are likely to show a positive contribution to Q4 GDP. All told, Q4 GDP is shaping up in +2 to +3% q-o-q range. Compare and contrast with negative quarterly GDP growth in Britain and the EU and +1% q-o-q in the US.

It is not just the Q4 and 2020 economic readings over the next three weeks that will show Australia’s economic performance in positive light by international comparison, a scattering of January economic readings should show continuing Australian out-performance early in 2021.

January labour force data later this week is expected to show another sizeable lift in employment (market forecast +40,000), record labour force participation around 66.2% and the unemployment rate edging down from 6.6% in December to 6.5% or lower.

Preliminary January retail trade data due on Friday is expected to show a big rise around 2% m-o-m.

Everything linked to housing is also rising strongly and should show in the latest readings of housing finance, house sales, prices and building approvals all due over the next fortnight.

Australia has been out-performing in handling the health and economic consequences of the pandemic. That out-performance will show more prominently in economic data releases over the next few weeks, especially in the Q4 GDP report completing 2020.

One consequence of manifest economic out-performance, however, is that markets will try to reflect it on longer-term interest rates and the value of the Australian dollar. The RBA may come under greater pressure to step up its bond buying program to limit rising longer-term bond yields and contain the Australian dollar exchange rate.