Pandemic brings 1st Australian recession in 29 years

Daniel Fowler
June 4, 2020

The data shows Australia's economy was struggling from a devastating bushfire season, a slowdown in tourism and weak domestic demand even before the coronavirus-related mobility restrictions kicked in.

"This was the slowest through-the-year growth since September 2009 when Australia was in the midst of the Global Financial Crisis and captures just the beginning of the expected economic effects of COVID-19", the bureau's chief economist, Bruce Hockman, said in a statement.

The headline numbers hide the overall weakness in the private economy.

"The size and speed of the decline are unprecedented and, as now legislated, there is a substantial policy cliff edge at the end of the third quarter [when the majority of the additional support for households comes to an end] that must be navigated".

"While fear of a lockdown saw panic-buying of food and household items, total consumption still fell by 1.1 per cent in the quarter", he said.

The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.

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The economy is expected to be stronger in the second half of the year, although much will depend on whether the government keeps its substantial fiscal stimulus in place.

"The Treasury was contemplating a fall in GDP of more than 20 percent in the June quarter".

With the release of National Accounts today, Treasurer Josh Frydenberg admitted the 0.3 per cent drop in GDP during the 12 months up until March meant Australia had officially entered the "R" word. "The economic impact will be severe".

While I mentioned yesterday that their housing market is still at risk and that household has high-debt levels, we have also seen household savings rise, which may offset the mortgage delinquency risk somewhat. "That's what Treasury's advice to me is", he said from Canberra on June 3.

Frydenberg said the negative March quarter "compared very well" to results in many other countries, showing the Australian economy's "remarkable resilience".

"The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely", RBA Governor Philip Lowe said Tuesday after keeping borrowing costs unchanged. But how quickly the economic damage will be undone is an open question.

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