Australia is running headlong into a recession, according to economists – its first in nearly 30 years

Australia flying into a recession (Photo by Yang Huafeng, China News Service, VCG via Getty Images)
  • Australia is about to enter a recession, according to 87% of economists in the latest Finder survey.
  • Economic consultancy firm Capital Economics says the prospect now looks “very likely”, with restrictions on travel and gatherings expected to push GDP growth for the first half of the year into negative territory.
  • The positive spin is two-thirds of economists also expect the recession to be short-lived, with Australia’s economy to begin recovering by the end of the year.
  • Visit Business Insider Australia’s homepage for more stories.

Having gone a world-record 29 years without one, Australia looks almost certain to enter a recession.

As Australia joins the multitude of countries grappling to contain the coronavirus outbreak, its economy looks “very likely” to plunge into a recession.

“New comprehensive restrictions on travel mean that both Australia and New Zealand are headed for recession,” Capital Economics senior economist Marcel Thieliant said in a research note issued to Business Insider Australia.

With both countries forcing all foreign visitors to self-isolate for 14 days upon entering the country, the coronavirus’ impact to tourism – already being felt from various restrictions on our biggest tourist market China – will only deepen.

“We had already assumed a 90% drop in arrivals from China due to the travel ban imposed at the beginning of February as well as a 50% drop in arrivals from other countries from March,” Thieliant said, noting tourism accounts for nearly 1% of Australia’s GDP. “The new restrictions mean that tourist arrivals will fall to near-zero which will knock off 0.5% from Australia’s GDP in both [quarters one and two].”

Before the coronavirus seized global markets and threatened economic growth, Australia’s economy was already expected to contract in the first quarter of the year. With the coronavirus likely to cannonball growth in the second, it’s now expected to guarantee a second consecutive negative quarter, constituting a recession.

Thieliant is hardly alone. The latest Finder survey of economists found 87% are expecting an Australian recession, compared to just 11% three months ago.

“We’ve seen fear of recession among the Australian public grow over recent months, while the vast majority of economists were saying it wouldn’t happen,” Finder Insights Manager Grahame Cook said. “COVID-19 pouncing unexpectedly on an already weakened Australian economy, has very much changed the game.”

Take the most recent ban on gatherings over 500 people, which Thieliant said looks set to hurt a whole range of other sectors.

“That will affect spending on arts and recreation which accounts for 1% of GDP. It’s difficult to tell how big the impact will be but the recent slump in cinema attendance gives us an indication,” he said.

While schools have thus far remained open, the decision to close them would also have far-reaching economic factors.

“We estimate that at least 1.85 million parents – 14% of employment – would need to reduce their working hours if schools close,” Thieliant said, noting a four-week school closure could “knock off as much as 2% from quarterly GDP.”

With the Australian economy only expected to post razor-thin growth margins before the coronavirus struck, any one of those subtractions will almost certainly push Australia tumbling into a recession. UBS economists, who also expect a recession, forecast unemployment could soar from 5.3% to 6.25% by the end of the year as a result.

The Reserve Bank of Australia (RBA) will meet on Thursday to discuss emergency measures and is expected to announced another rate cut and Australia’s first-ever quantitative easing (QE) program.

How long the downturn lasts, however, is another matter. Of those surveyed by Finder, two-thirds predicted a recession would be over by the end of the year; the assumption being that containment by the middle of the year will be followed by a relatively swift recovery.

Whether or not it is will depend on what governments, central banks, and health authorities do both home and abroad, to contain its spread.

The question of an Australian recession for now, however, seems all but settled.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.