With the restrictions on business and the economy being imposed to prevent the spread of the novel coronavirus pandemic, the Australian economy was pushed into its deepest economic slump on record in the second quarter of the current year. This has increased pressure on the government to continue providing support and stimulus to the economy.
There was a 7 per cent shrinkage in the A$2 trillion (1.10 trillion pounds) economy of the country in the three months to end-June compared to a 0.3 per cent contraction in the March quarter, showed data from the Australian Bureau of Statistics on Wednesday.
Australia now joins a number of other advanced economies including the United States, Japan, UK and Germany that have fallen into a technical recession which technically happens when there are two consecutive quarters of decline. This is the first such recession for Australia since 1991.
“This crisis is like no other,” Treasurer Josh Frydenberg told reporters in Canberra. “Today’s national accounts confirm the devastating impact on the Australian economy from COVID-19. Our record run of 28 consecutive years of economic growth has now officially come to an end.”
Giving a clear signal of the intention of the government to continue with the fiscal stimulus, Frydenberg added, “our commitment to the Australian people is that we have your back. We will be with you through this crisis and…all the way out of this crisis.”
Ever since records began in 1959, the quarterly drop in the country’s quarterly gross domestic product (GDP) in the June quarter was also the largest.
The contraction of the economy was steeper than the median forecasts of 5.9 per cent.
It is noteworthy that currently Victoria, the second most-populous state of the country, is in a state of lockdown imposed to prevent the spread of the coronavirus. The country’s international borders are also shut.
The September quarter GDP would be weighed down “heavily” by the Victoria’s lockdowns, Frydenberg said.
Since March, when entire sectors of the economy were shut down by Australia which severely hit private sector demand and investments, the total lob losses in the country has crossed a million.
In order to support the economy, the government had announced a more than A$300 billion stimulus package. But since the economic recovery is expected to be uneven and bumpy, the need for more stimulus was underscored by Wednesday’s gloomy data.
On an annual basis, GDP declined by 6.3%.
“Looking ahead, it is clear that the path back from the COVID-19 recession will be protracted,” said Sarah Hunter, chief economist for BIS Oxford Economics.
“Growth in the September quarter will be weighed down by the lockdown in Victoria, and beyond this continued health concerns, ongoing restrictions and the dialling back of income support will all weigh on the economy,” Hunter added. “We expect it to take until early 2022 for activity to return to pre-pandemic levels.”
(Adapted from Reuters.com)