Unimaginable bushfires. Severe drought. Unprecedented economic damage due to COVID-19. Is it any wonder that Australia’s extraordinary run of 29 years without an economic recession has come to an end?
But before any national wrist-slitting begins, it’s worth remembering that this contraction is likely to be far less severe than in many countries. In fact, given the global impact of the coronavirus, our economy may yet turn out to be a comparatively good performer.
Economy contracted by 0.3% in March
In a briefing with reporters on Wednesday 3 June, treasurer Josh Frydenberg said the economy had contracted by 0.3% in the March quarter and a further contraction was predicted for June. A recession is typically defined as a fall in GDP in two successive quarters.
Frydenberg also noted that the economy grew only 1.4% over the past 12 months, its worst performance since the global financial crisis of 2007-09.
He expects the June quarter contraction to be more severe than the March figure. But the treasurer emphasised that the nation had avoided “an economist’s version of Armageddon”. This had been achieved through lockdowns that had succeeded in flattening the curve of infections and through the significant income support given to Australians.
Consumption figure shows biggest decline in 34 years
According to data supplied by the Australian Bureau of Statistics (ABS) for March, household consumption fell by 1.1%. Although this may sound relatively small, it is the first decline since 2008 and the largest quarterly decline in 34 years.
While consumers increased their spending on goods in anticipation of the coming lockdown, spending on services declined by 2.4% because of travel bans and social distancing restrictions. Specifically, spending on transport services was down by 12%. Hotels, cafes and restaurants went down by 9.2%.
Sales of clothing and footwear also plunged by 8.9% as consumers focused their purchases on essential goods and home office equipment in preparation for the lockdowns ahead.
A rise in government spending helped to offset these falls and added 0.3% to growth. Net trade contributed a further 0.5% because Australia’s imports reduced significantly, but exports of commodities held up surprisingly well.
Opposition says economy was weak before the virus
Commenting on the figures, shadow treasurer Jim Chalmers, said the economy was weak before the virus hit, with below-trend growth, stagnant wages and paltry business investment.
He said the country’s extended run of economic growth was “created by Hawke and Keating … and it ends under Morrison and Frydenberg”.
“For too long, they skated on this undeserved reputation as good managers of the economy when the facts tell a very different story,” Chalmers said.