Australian economic growth came to a shuddering halt on Wednesday, logging the largest quarterly contraction since the depths of the global financial crisis in late 2008.
It’s stunned a few people, and has been a labelled a “wake up call” by some prominent politicians and economists alike — for good reason given it’s unusual for Australia, as seen in the chart below:
Not only was it the largest decline in eight years, it was only the fourth quarterly contraction seen since Australia’s last technical recession — defined as two consecutive quarters of negative GDP — in 1991.
While few think that a similar scenario will eventuate in the current quarter — pointing to solid retail sales and continued strength in job advertisements — it’s clear the figure will come as a shock to more than a few Australians.
The question now is whether households and businesses will brush aside the GDP report, or become even more cautious when it comes to spending and investment.
While household consumption expenditure added 0.3 percentage points to GDP this quarter, an improvement on the levels seen in Q2, it will be interesting to see what impact the GDP report will have on consumer confidence levels, if any, in the weeks ahead.
As a lead indicator on consumer spending, any sharp deterioration will be a concern, particularly as consumption levels are influential on many other areas of the economy.
On Tuesday and Wednesday next week, the ANZ-Roy Morgan and Westpac-MI surveys will be released.
The NAB will also release its latest business confidence survey next Tuesday.
After today’s outcome, they’ll receive more attention than usual.