Coronavirus pandemic

Australia set to suffer first recession since 1990s as boom ends

SYDNEY • Australia's economy has fallen into recession, the country's treasurer said yesterday, after data showed its gross domestic product (GDP) fell last quarter as entire business sectors were closed to fight Covid-19.

The A$2 trillion (S$1.93 trillion) economy contracted by 0.3 per cent in the three months ended March, the Australian Bureau of Statistics said, the first decline in nine years.

That took annual growth to 1.4 per cent, the slowest since the 2009 global financial crisis, as the economy was hit by the worst bush fire season in living memory, a prolonged drought and a pandemic that shut down businesses and left many without jobs.

When asked if the country was already in recession, which is technically defined as two straight quarters of GDP contraction, Treasurer Josh Frydenberg answered in the affirmative. "Based on what we know from Treasury, we're going to see a contraction in the June quarter, which is going to be a lot more substantial than what we have seen in the March quarter," he told reporters in Canberra. That would mark Australia's first recession since the early 1990s and end one of the world's longest growth streaks.

Household consumption was the biggest drag on growth last quarter, with massive falls in spending on clothing, cars, transport, recreation, hotels, cafes and restaurants. Net exports and government spending supported the economy in the quarter.

The economic fallout deepened as the number of local coronavirus cases surged, forcing the government to shut borders and restrict large gatherings. Those curbs hit retailers and upended the labour market, with 600,000 people losing work and the unemployment rate spiking to 6.2 per cent in April. The central bank expects unemployment to hit 10 per cent by this month and stay elevated for much of next year.

Mr Gurpreet Singh lost his job at a cafe in Sydney's west after it cut casual worker shifts. His home rental payments have now fallen five weeks into arrears. To survive, he earns money delivering for UberEats on his pushbike and has turned to free food drives.

"This recession will be particularly bad for us young people," Mr Singh, 29, said. "This money from UberEats is not bad, but I am worried about my future. It's going to be hard to find (permanent) work."

To cushion the blow to the economy from the pandemic, the Reserve Bank of Australia (RBA) stepped in by cutting the cash rate to a record-low 0.25 per cent and launched an unlimited bond buying programme.

The government, meanwhile, unleashed a large fiscal stimulus plan, including a A$60 billion wage subsidy scheme. Those measures are working as expected, RBA governor Philip Lowe said this week, sounding less gloomy about the economy as health outcomes improved and businesses reopened earlier than expected.

While Australia is in its worst downturn since the Great Depression, economists generally see growth returning in the third quarter.

"There are early signs of this improvement in the timely economic indicators," HSBC economist Paul Bloxham said. "Consumer sentiment is rising. Weekly employment numbers showed a pick-up in some industries... in early May."

Deutsche Bank economist Phil O'Donaghoe said Australia has performed well by global comparison, suggesting its luck has not completely run out.

Of 19 rich world countries that have reported first-quarter GDP, Australia has outdone 17, with only Sweden reporting a quarterly expansion. Those 17 economies fell 2.9 per cent on average compared with Australia's 0.3 per cent decline, Mr O'Donaghoe said.

Optimism about a second-half recovery as the economy reopened supported the Aussie dollar. The currency dipped after the GDP figures were released but remained near a five-month peak at $0.6938 yesterday afternoon.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on June 04, 2020, with the headline Australia set to suffer first recession since 1990s as boom ends. Subscribe