Australian economy is officially in recession as two consecutive quarters of March 2020 and June 2020 were in negative GDP growth. This is a Coronavirus induced recession in almost 3 decades, after the recession “we had to have” in 1990-91, mainly caused by restrictive monetary policy in response to high inflation.
The quarter ended 31 March 2020 had a negative growth of 0.3% and the quarter ended 30 June 2020 experienced a negative growth of 7%, the previous largest fall in GDP growth was 2% in 1974 during the 1970s recession due to economic stagnation. In comparison with 1990s recession, the quarter ended 31 March 1991 produced a fall in GDP growth of 1.3% while the negative growth in the quarter ended 30 June 1991 was only 0.1%.
Different sectors of the Australian economy were affected at different levels as activities in them varied widely. Aviation and Tourism had virtually no economic activities while retail sector had some sales to satisfy basic needs. In the quarter of June 2020, the largest hit in growth was experienced by accommodation & food sector with a negative growth of 39%, followed by arts & recreation (-23%), transport (-22%), other business services (-19%), wholesale & retail trade (-14%), manufacturing (-10%), construction (-9%) and healthcare (-8%).
Wages, household expenditure and savings play an important role in the GDP growth of the Australian economy, two of which experienced high falls in the June 2020 quarter. Over all, wages went back by 2.5% and the household expenditure reduced by 12.1%, both of which will have significant adverse impacts on the economic growth in the next quarters or years.
Only good news story of this Covid-19 induced recession is the rate of private savings which had a growth of 20% in the June 2020 quarter. This was a 50-year high in the rate of savings in Australia, where ordinary rate of private savings is around 6%. Australians saved highly as there was practically no opportunity to spend due to wide-spread lockdowns as well as these are prudent people who tend to behave in accordance with current economic conditions.
Although this recession is the biggest economic plunge on record, it could have been worse in the absence of appropriate health and economic response by the Federal and State/Territory governments. The economic response package that shielded the Australian economy include JobKeeper scheme, JobSeeker scheme, lump-sum payments for welfare recipients and retirees, early release of superannuation, instant asset write-off for taxation, cash-flow boost for employers, support for apprentice/trainees, support for regional Australia, low cost credits for small businesses and measured changes in bankruptcy regulations.
In this pandemic in a century, Australian economy has performed much better than comparable economies in the World, due to a good management of health and provision of appropriate economic response. In the quarter ended 30 June 2020, Spain had a negative GDP growth of 22%, United Kingdom (-21%), France (-19%), Italy (-17%), Europe (-15%), United States (-13%) and, comparatively, Australia’s negative performance was 7%.
An economic recession is generally characterised by low aggregate demand, high unemployment, low interest rates and low economic growth. Australian economy currently has all these characteristics.
Many Australians have lost jobs, had to reduce working hours, got pay cuts, had to put mortgage payments on hold and couldn’t afford the level of expenses to maintain their life style.
In the years to come, it will be hard to find a job, there will be a stiff competition in the job market and businesses will not hire widely.
Young people are particularly in a general disadvantaged position. They will have to compete with experienced workers who lost jobs in recent times. For Australians in jobs, generally speaking, there will be no pay rises and wage growth will be very slow in probably years to come.