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Economic recap: Week to September 3

The Australian Bureau of Statistics (ABS) released its "National Accounts" report for the June 2021 quarter, and it was good... nay, it was great!

The report showed the economy grew by a better-than-expected 0.7% in the second quarter of the year, taking Australia's annual GDP growth rate up, up (and away) to 9.6% -- the highest year-on-year growth rate on record (1960s is all I have).

Australia is up there with the big boys. The June quarter's annual growth rate is faster than China's 7.9% score and Japan's 7.6%. While it's below that of the US (12.2%), the Eurozone (13.7%) or the UK (22.2%), these economies suffered deeper and/or longer contractions than the land down under.

But it's akin to a death row inmate being given a sumptuous meal before their execution.

This is perhaps a bit extreme; Treasurer Josh Frydenberg stated the same in a more politically-correct tone: "Today's economic numbers showed that we had seen solid growth over the June quarter, that our economy is strong, our economy is resilient, and our economy will bounce back strongly once restrictions start to ease."

"Today's national account numbers do not change the fact that our economy has some very difficult days ahead."

True that. This is because these "wonderful set of numbers" tracked the Australian economy before the Delta variant ran rampant, particularly in the states of New South Wales (NSW) and Victoria (VIC) that has prompted hard lockdowns there. NSW recorded 1288 new cases of infections (the biggest daily increase in infections since the coronavirus outbreak, so far) and VIC 176 new infections (also the highest, so far) on the same day the "great" economic growth data was released.

Infections have continued to multiply in these two states since then, forcing their respective governments away from elimination policies and towards increased vaccination to reach herd immunity.

The Delta variant outbreak is now expected to cause a contraction in the Australian economy in the third quarter.

This is now compounded by China's recent act to punish Canberra which could tip Australia into a double-dip recession. Beijing's cutting down on steel production. The National Bureau of Statistics (NBS) figures show that China's steel output fell to a 15-month low in July. Chinese steel production fell by 8.4%. With the Politburo "dictating" that steel mills ensure their 2021 steel production doesn't exceed that of 2020, "Analysts estimate output will need to fall ~12% from August through December to meet China's 2021 target". (Factset).

More worrying, the Global Times reported that: "China's steel shipments to Australia have dwindled by more than 50 percent in recent months, faster than the country's overall steel export plunge, and the trend is set to further accelerate, as China takes more measures to cut output and restrict exports..."

This is already impacting iron ore prices - Australia's biggest resource export. After reaching an all-time high of US$219.77/tonne in late July this year, prices have collapsed by 27.5% to US$159.25/tonne by the end of August.

Further declines in Chinese steel output and, by extension, demand for iron ore should see further weakness in iron ore prices.

Read our full COVID-19 news coverage and analysis here.

Read more: Josh FrydenbergAustralian Bureau of Statistics