March-quarter gross domestic product drop points to recession ahead for Australia
Australia’s economy contracted 0.3 per cent in the March quarter, according to official figures that mostly predate the economic damage from the COVID-19 lockdowns.
Gross domestic product grew just 1.4 per cent in the 12 months to March 31 as the economy took a hit from the bushfires and the beginning of the coronavirus crisis, the Australian Bureau of Statistics says.
“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,” ABS chief economist Bruce Hockman said.
“I think it’s the sort of story we were anticipating,” said St George chief economist Besa Deda.
“It looks a lot better than some of the other economies around the world.”
Economists had said there was an outside chance the readout would be flat or positive, which would have given Australia the chance to extend its unprecedented run of more than 29 years without a recession, which economists define as two consecutive quarters of economic contraction.
With Australia’s economy certain to shrink this quarter — the consensus is for a contraction of about 8.5 per cent — it’s clear that Australia will officially record its first recession in almost 30 years when the next GDP figures are released in September.
Westpac economist Andrew Hanlan said the key downside surprise in the figures was that consumer spending dropped 1.1 per cent.
“While retail rose, spending in other areas was hard hit by the pandemic,” Mr Hanlan said.
While spending on goods rose — notably in food and pharmaceuticals — spending on services such as travel, dining and recreation fell sharply.
Home building and business investments were down, as were business inventories as the pandemic disrupted supply chains.
Overall private demand subtracted 0.8 percentage points from GDP while public demand contributed 0.3 per cent percentage points to it, with government spending rising 1.8 per cent as authorities responded to the bushfires and the COVID-19 pandemic.
BIS Oxford Economics chief economist Sarah Hunter said she expected the decline in first-half GDP to be “relatively small when compared to other economies — we now expect the peak to trough fall in GDP to be significantly less than 10 per cent”.
“The economy was hit by bushfires, drought, cyclones, flooding and a global pandemic and only fell 0.3 per cent,” CommSec chief economist Craig James said.
That was just 1.2 per cent fall at an annualised rate, compared with a 5 per cent contraction in the United States, 7.7 per cent per cent in the UK, 8.6 per cent in Germany and 33.8 per cent in China, Mr James said.