Australia’s worst recession since WW2
COVID-19 has impacted many industries including transport, hotels, cafes and restaurants. The result is that Australia is now officially in recession – the worst since World War 2 and the first for nearly 30 years.
A recession is defined as two consecutive quarters of contraction, otherwise known as negative growth. That is two quarters of declining Gross Domestic Product (GDP).
In the March quarter, GDP dipped by 0.3 per cent, with Treasurer Josh Frydenberg expressing his belief that the April to June quarter would be “far more severe”.
At the time, the Treasurer predicted an 8.5 per cent slump.
He wasn’t far off.
Australia’s GDP fell 7 per cent for the June quarter on the back of the economic effects of COVID-19.
While less of a drop than Mr Frydenberg expected, it is higher than predicted by the Reserve Bank of Australia (RBA).
Household consumption fell in 10 of the 17 consumption categories, whilst social distancing and travel bans are to blame for spending falls on transport services, hotels, cafes and restaurants.
“(There were) small increases in an alcoholic beverages, furnishings and household equipment, recognising that people are staying at home,” Mr Frydenberg said.
“People are going down to the local store buying themselves a new computer and new TV and obviously, drinking more at home as opposed to the local pub.”
Tourism and hospitality were two of the hardest hit.
“The health-related restrictions significantly affected our tourism and our international education industries,” he said.
“With services trade heavily impacted by travel bans on both inbound and outbound travel, travel-related trade has almost ceased, resulting in sharp falls in both imports and exports.”
The recession ends 28 years of consecutive economic growth.
“COVID-19 has wreaked havoc on our economy and our lives like nothing we have ever experienced before. But there is hope,” he said.
“We have done everything possible to cushion the blow for the Australian community from COVID-19.”
Despite his optimism, things could get worse before improving as these figure fail to take into account the stage 4 lockdown in Victoria.
While the numbers are grim, Australia is faring better than other countries including Canada, Germany and Britain.
The light at the end of this tunnel is that this is a recession caused by a health event, not an economic downturn. This would point to a quicker recovery, if the country can get the pandemic under control and bring some normalcy to business.
CommSec chief economist Craig James highlights this point saying, “It hasn’t occurred because there has been some policy mistake — like the Reserve Bank leaving interest rates too high,” he said.
“It’s not your typical recession because home prices are still at or near record highs.”
The Federal government is now said to be waiting for the Victorian government to announce its roadmap out of lockdown, before announcing an economic recovery plan.
Irit Jackson, 3rd August 2020
