Australian economy is likely set to fall into a vicious contraction in the third quarter as the economy was likely already slowing down prior to the imposition of wide scale coronavirus restrictions which closed down business and jobs.
If the data on gross domestic product (GDP), which is to be released on Wednesday, matches the weakest of the forecasts for the quarter, there is also a remote likelihood that the Australian economy has already entered into a spiral of recession. The median forecast of economists pits the growth rate of the economy at .0.5 per cent for the June quarter while the worst forecast is of a decline of 0.1 per cent and the most optimistic forecast is of a growth of 1.2 per cent. The wide range of forecasts also highlights the uncertainty of the age.
The Australian economy grew at 1.8 per cent in the March quarter and a strong 3.2 per cent in the last quarter of 2020.
“For most of the June quarter the Australian economy was travelling well, but then the Delta variant arrived,” said CBA’s head of Australian economics Gareth Aird.
“For all intents and purposes, the Australian economy is currently in a manufactured recession as we go through another huge negative shock.”
It is likely that there was strength in consumer spending and business investment in the current quarter, a large part of it was met through a flurry of imports while there was a depletion of inventories instead of a growth in output, that hit the overall GDP of the country during the quarter.
Further credence to the high level uncertainty of recent times was available in forecast of a 9.2 per cent annual growth – which would be the fastest for the economy in its modern history. However, that growth rate would be heavily skewed against the huge 7.0 per cent contraction in the Australian economy in 2020 because of the massive hit of the pandemic. Some analysts say that the very low base of 2020 is mostly overlooked while celebrating the possible estimated historic annual growth.
There is however a more or less agreement among analysts and economists about the high possibility of a contraction in the current quarter because of a new round of pandemic induced lockdowns gripping millions in Sydney, Melbourne and Canberra.
“While a flat to negative Q2 GDP print is a real risk, this is far in the rear vision mirror as far as the economy is concerned given the sharp contraction expected in Q3 which we have pencilled in at around -3% q/q,” said NAB chief economist Alan Oster.
The most crucial question for the economy now is the time period of the lockdowns and the speed at which business activity will recover after that. Indications of restrictions being extended into the next week was given by authorities in Victoria state, while it is likely that restrictions will be in place for September, and likely extend into October, in New South Wales.
That would be longer than was expected by the Australian central bank – the Reserve Bank of Australia (RBA), which has forecast a shrinking of the economy by only 1 per cent for the current quarter.
(Adapted from USNews.com)