Australia says recession underway after Q1 GDP contracts 0.3%

Marco Green
June 3, 2020

Australia's economy contracted in the first three months of the year, setting up an end to a almost 29-year run without a recession as an even deeper slowdown looms for the current quarter. The economy shrank 0.3 percentage points in the March quarter, while the three months to June is expected to be far worse.

"Well, the answer to that is yes", he told reporters in Canberra on Wednesday.

On a technical basis, it won't be confirmed that Australia is in a recession until the June quarter figures are released - expected in September.

The definition of a recession is two consecutive quarters of the negative growth, a requirement that is certain to be met in the June quarter which will include the economy wide shutdowns ordered to save lives and protect the community from Covid-19.

Australian Federal Treasurer Josh Frydenberg has acknowledged the country is on the verge of entering its first recession since 1991.

"This long run of growth was created by Hawke and Keating, defended by Rudd and Swan, and it ends under Morrison and Frydenberg", shadow treasurer Jim Chalmers told reporters in Brisbane.

Partly offsetting the falls were a rise in government spending, which added 0.3 percentage points to growth, and net trade, which contributed 0.5 percentage points as imports slumped while commodity exports held up reasonably well.

Frydenberg said Australia's performance was outstanding considering the nation was facing an economic Armageddon.

"Less than 100 days ago, our nation was on the edge of an economic cliff", he said.

Frydenberg said the dramatic falls in spending in the March quarter were some of the largest on record in decades.

"The size and speed of the decline are unprecedented and, as now legislated, there is a substantial policy cliff edge at the end of the third quarter [when the majority of the additional support for households comes to an end] that must be navigated".

Its a poor report, of course, but I am going to grasp at that straw of higher savings as a positive.

The household saving rate jumped as households cut back on spending, despite a 6.2 percent increase in social assistance benefits.

Household consumption was the biggest drag on growth last quarter with massive falls in spending on clothing, cars, transport, recreation, hotels, cafe and restaurant. One reason is that households stopped panic buying of food.

Other reports by Click Lancashire

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