Economy crashes 7 per cent to our worst-ever result, but still better than most

Australia’s economy crashed by 7 per cent in the June quarter, the largest fall on record and worse than economists had been predicting.

Sep 02, 2020, updated Sep 02, 2020
Treasurer Josh Frydenberg   (Photo: AAP Image/Lukas Coch)

Treasurer Josh Frydenberg (Photo: AAP Image/Lukas Coch)

The fall also represented the second consecutive quarter of negative economic growth making it officially a recession.

“Our record run of 28 consecutive years of economic growth has now officially come to an end,” Treasurer Josh Frydenberg said.

Queensland’s domestic economy (excluding exports) fell by 5.9 per cent in June quarter, which was a better performance than NSW, Western Australia, Tasmania and Victoria, but it suffered a heavy fall of 17.6 per cent in machinery and equipment purchasing, an indicator that the state’s business has been devastated.

Queensland was also hit by a 7.1 per cent fall in dwelling construction and total final consumption expenditure decreased 5.7 per cent. That consisted of a 10 per cent fall in discretionary spending.

The Australian Bureau of Statistics said the combined effect of the pandemic and the community and government responses to it led to “movements of unprecedented size, not only in GDP but also in many other economic aggregates”.

“This is by a wide margin, the largest fall in quarterly GDP since records began in 1959,” ABS head of national accounts Michael Smedes said.

Private demand detracted 7.9 per cent from GDP, driven by a 12.1 per cent fall in household consumption.

Spending on services fell 17.6 per cent with falls in transport services, operations of vehicles and hotels, cafes and restaurants.

“The June quarter saw a significant contraction in household spending on services as households altered their behaviour and restrictions were put in place to contain the spread of the coronavirus,” Smedes said.

Hours worked fell almost 10 per cent, outpacing the record 2.5 per cent decline in wages.

Forecasts from economists were for a fall of 6 per cent.

Elsewhere in the world there have been enormous slumps such as 20 per cent in UK gross domestic product and double-digit percentage falls in France, Canada, Germany and the US, but China, Taiwan, South Korea and Vietnam have all performed better.

Deloitte Access Economics senior economist Sheraan Underwood said underlying equations was that the greater success against coronavirus, the better the economic performance.

“COVID-19 has wreaked enormous havoc across the global economy,”  Frydenberg told parliament on Tuesday.

Reserve Bank Governor Dr Philip Lowe went even further back in history, saying the economy was experiencing the biggest contraction since the 1930s.

“As difficult as this is, the downturn is not as severe as earlier expected and a recovery is now under way in most of Australia,” Lowe said in a statement following the central bank’s monthly board meeting.

The sharp fall in the June quarter follows a more modest 0.3 per cent decline in the March quarter but constitutes a technical recession – two consecutive quarters of contraction.

As expected, the Reserve Bank board left the cash rate at a record low 0.25 per cent and will continue to target market interest rates at the same rate through the buying of bonds.

However, the Reserve Bank has extended its term funding facility to allow banks to have access to additional funding at a fixed rate of 25 basis points for three years, which will be available until the end of June 2021 and beyond the original September cut off date.

New ABS figures show Australia’s export performance has been a bright spot for an economy in recession, while government spending was also strong.

Net exports – exports minus imports – are expected to add one percentage point to economic growth in the June quarter.

It came as the nation’s current account trade surplus ballooned to $17.7 billion in the June quarter compared with $9 billion in the previous three months.


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