Australia's economy shrank 1.9% in the third quarter on pandemic-induced lockdowns in a downturn that bucked the trend of a steady recovery in other wealthy nations.
The Australian Bureau of Statistics on Wednesday reported the country's second quarterly contraction since the pandemic began – and one of the largest contractions on record – sparked by long-running containment measures in populous states.
Sydney, Melbourne and Canberra were all closed for chunks of the quarter, causing households to spend dramatically less on services.
There was a 21% drop in spending on hotels, cafes and restaurants and a 40% drop in spending on transport.
The downturn was out of step with other major economies such as Canada, India, Japan, the United States and the eurozone, which all saw growth during the period as they reopened for business.
Economists had forecast a 2.8% contraction, but increased exports appear to have come to the rescue – buoyed by high coal and gas prices.
The economy is widely expected to bounce back in the final quarter of the year.
"These data show the significant disruption caused by lockdowns in the two largest states, they are now firmly in the rear-vision mirror," said NAB chief economist Alan Oster.
He added that indicators of more recent activity suggest "a very solid rebound is already underway".
The latest figures will further raise concern about the potential impact of the Omicron variant, with Moody's Investor Service on Wednesday warning the new strain "poses new risks to the global economic growth and inflation outlook".
With 87% of over-16s now fully vaccinated, there are hopes that further lockdowns can be avoided.
But Australia is among the countries that have already tightened travel restrictions as a result of the strain's discovery.
"The emergence of Omicron highlights that the biggest uncertainty around the outlook comes on the health front. 'Living with Covid' is proving to be unpredictable," said ANZ senior economist Felicity Emmett.
"While it's too early to predict its impact, its emergence reminds us that this is a health crisis first and that economic outcomes are tied to the health outlook."
The Reserve Bank of Australia has predicted that while the economic recovery has been "uneven", economic "confidence has held up reasonably well".
"In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year."
