Australia’s economy goes down under with record, virus-led slump

A record plunge in consumption as the country went into lockdown led to its first recession in nearly 30 years.

Melbourne's Luna Park, which was shut down following a resurgence of the pandemic last month, is a symbol of an economy experiencing a record slump [File: Sandra Sanders/Reuters]
Melbourne's Luna Park, which was shut down following a resurgence of the pandemic last month, is a symbol of an economy experiencing a record slump [File: Sandra Sanders/Reuters]

Australia weathered three severe regional and global downturns over the last 30 years, but even its apparently bulletproof economy has succumbed to the devastation caused by the coronavirus pandemic, figures released on Wednesday showed.

The country’s gross domestic product (GDP) shrank by 7 percent in the three months to end-June compared with the previous quarter, coming in worse than analysts’ forecasts. That followed a 0.3-percent contraction in the March quarter, effectively plunging Australia into a recession, defined by most economists as two consecutive quarters of negative growth. 

“This crisis is like no other,” Australia’s Treasurer Josh Frydenburg said at a news conference. “Today’s devastating numbers confirm what every Australian knows, that COVID-19 has wreaked havoc on our economy and our lives like nothing we have ever experienced before,” he added.

The 7-percent plunge in GDP was the largest quarterly fall since records began in 1959, the Australian Bureau of Statistics (ABS) said in a statement.

Australia’s economy had managed to continue growing during the 1998 Asian financial crisis, the dot-com bust of 2000-2001 and the 2008-2009 global financial crisis, helped by a combination of strong demand by China for raw materials such as coal and iron ore, and a seemingly insatiable domestic appetite for housing and consumer goods.

[Bloomberg]

But it was the plunge in household consumption, which accounts for more than half of Australia’s economic activity, that took the greatest toll on the April-to-June figures. The 12.1-percent fall in consumption reduced GDP by 6.7 percentage points as people stayed home, and shops and restaurants stayed shut.

“Spending on services fell 17.6 percent, with falls in transport services, operation of vehicles and hotels, cafes and restaurants,” the statistics bureau said. “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.”

Victoria in crisis

The other big reason for the plunge has been a surge in cases in the state of Victoria since July.

Australia has recorded almost 26,000 cases in total and 663 deaths from the virus to date, according to US-based Johns Hopkins University, far fewer than many other developed countries

The vast majority of cases in the past couple of months have been in the state of Victoria and its capital Melbourne, emerging after the country’s initial success in containing the virus.

Victoria implemented a state of emergency last month, with tough penalties for anyone caught violating isolation orders. Frydenburg said the measures imposed by Victoria would have a bearing on Australia’s economic performance beyond the second-quarter data.

“It’s important to recognise that this fall in the June quarter does not include the economic impact from the Stage 4 restrictions imposed by the Victorian government in early August,” he said.

Victoria State Premier Daniel Andrews said earlier this week that the state government would release a “roadmap” next Sunday for easing restrictions and an overnight curfew in Melbourne, but stressed changes would be gradual and would be guided by science and public health concerns.

Police and military officers enforced a strict coronavirus lockdown in Melbourne [File: James Ross/AAP via Reuters]

But, despite the situation in Victoria, some analysts see a partial nationwide recovery in the third quarter.

“Looking ahead, output will continue to fall in Victoria in [the third quarter] as restrictions on activity were tightened further in the wake of its second wave. By contrast, activity elsewhere will rebound,” Marcel Thieliant, senior Australia and New Zealand economist at research firm Capital Economics said in a note sent to Al Jazeera.

“We suspect that the recovery outside Victoria will be sufficient to generate a small 0.5 [percent quarter-on-quarter] rise in [third quarter] GDP,” Thieliant added.

Gloomy outlook

Frydenburg said he sees growth being “slightly negative or flat” for the three months to the end of September. The country’s central bank, the Reserve Bank of Australia, estimates the economy will shrink by 6 percent over the whole of 2020. 

But Robert Carnell, regional head of research at Dutch bank ING said Australia’s performance compares favourably with other countries in the Asia Pacific region.

“There is a good chance that Australia ends up in the ‘less negative’ half of the table as far as the cumulative loss to GDP since [the fourth quarter of 2019] goes, a little ahead of Japan, but behind North Asian economies, China, Korea and Taiwan,” Carnell said in a note sent to Al Jazeera.

Government programmes have helped cushion some of the economic blow from the pandemic.

On Tuesday, Parliament agreed to extend through to the end of March a 100-billion Australian dollar ($73.6bn) programme to support people who have lost their jobs.

But the twice-monthly payments will fall by 20 percent from September 28, and the scheme has been criticised by some of the government’s opponents as doing more to help chief executives than their employees.

Frydenburg said last month the government expects Australia’s effective unemployment rate to climb above 13 percent by the end of September, mostly driven by job losses in Melbourne due to its severe lockdown.

He said the unemployment rate stood at 9.9 percent as at end-July, down from a record high of 14 percent in April at the height of the nationwide coronavirus restrictions.

Source : Al Jazeera

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