- Wednesday’s GDP figures show the Australian economy contracted by 7% in the June quarter.
- The enormous quarterly decline dwarfs previous declines experienced during the country’s 1980s and 1990s recessions.
- It marks the beginning of Australia’s first recession in 29 years.
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It is a contraction of the economy so big, Josh Frydenberg could confirm Australia was in recession months before the numbers were even finalised.
On Wednesday, the latest GDP figures showed the economy shrunk 7% in the three months to June, following on from a much smaller 0.3% decline in March.
The two consecutive quarterly falls mean Australia has now entered an official recession, its first in 29 years and a reality that was established way back in June as the magnitude of the pandemic was realised.
The June contraction is Australia’s largest single-quarter decline on record. For comparison, the closest in recent decades was during the 1980s recession when the economy shrunk by less than 4% in one quarter.
Of course, comparisons are only so helpful in this instance. Previous recessions were not produced by global pandemics, nor did they call for the shutdown of large parts of Australia’s economy.
Looking abroad, Australia has managed to fare better than most other developed economies, with the performance of each largely linked to their success containing the virus.
Of course, it’s more significant what happens next, and whether a subsequent recovery is due.
In large part that will depend on consumer spending and confidence. The GDP figures themselves suggest households are cautious, with their saving ratios more than trebling to 19.8%.
Consumer spending, the largest part of the economy, fell by 12.1% as a result. Key to the recovery will be the ability of the federal government and the Reserve Bank of Australia to support households and encourage spending.
New South Wales and Victoria were impacted the most, with their respecitve state economies shrinking around 8.5% each, while Tasmania was hit hard by the disappearance of tourism.
While huge government support softened the blow, a collapse in private sector demand overshadowed the stimulus.
With government programs like JobKeeer and JobSeeker tapering off later this year and into the next one, it remains to be seen what shape that recovery takes.
“Looking ahead, it is clear that the path back from the COVID-19 recession will be protracted,” BIS Oxford Economics chief economist Sarah Hunter said.
“Growth in the September quarter will be weighed down by the lockdown in Victoria, and beyond this continued health concerns, ongoing restrictions and the dialling back of income support will all weigh on the economy. We expect it to take until early 2022 for activity to return to pre-pandemic levels.”
More to come.