Jun 11 2020
The COVID-19 pandemic is poised to send Australia into its first recession in 29 years. A recession is defined as two consecutive quarters of negative growth in GDP. Data released by the ABS revealed the economy declined 0.3% in seasonally adjusted chain volume terms during the March quarter, and a much more substantial decline is expected in the June quarter.
The decline in the March quarter was triggered by the COVID-19 outbreak and bushfires. These events drove a fall in consumer spending of 1.1% during the quarter. Despite consumer stockpiling of food, beverages and other household goods, reduced spending on larger ticket items and other discretionary outlays such as travel, accommodation and clothing saw this segment contract overall. This was the largest one quarter decline in household final consumption since 1986, and the first since the Global Financial Crisis in 2008. In addition, export volumes contracted 3.5% and both public and private investment declined overall. Constraining the overall decline was a 1.8% increase in government spending, a slight uptick in non-dwelling construction investment and 6.5% fall in import volumes.
The March quarter’s path to a recession will only be confirmed by a consecutive decline in the June quarter, with IBISWorld forecasting a 7.5% decline. Significant limits on economic activity due to imposed lockdown measures are expected to result in the economy shrinking further. Falls in consumer spending, which accounts for approximately 55% of the economy, and private capital investment are expected to be the main drivers of the decline. Hinting at the scale of the decline is retail sales figure from April, which came in nearly 18% below March, seasonally adjusted. Weaker global demand will likely result in a decline in Australia’s key commodity exports such as iron ore and coal. However, a fall in imports is likely to at least partially offset this. Governments spending, through stimulus measures such as the JobKeeper and JobSeeker programs will also be higher, but nowhere near enough to offset the decline.