It’s Official: Australia is in a Recession

Australian Gross Domestic Product (GDP) fell by 7.0 per cent in the June quarter 2020, the largest quarterly fall on record, according to figures released by the Australian Bureau of Statistics (ABS) today (2 September 2020). This follows a fall of 0.3 per cent in the March quarter 2020. On an annual basis, our Australian economy has contracted by 6.3% in June 2020 (1).

Economists define recession as two consecutive quarters of negative growth. It has been widely stated that we are in an economic recession but it was only at 11:30am today when the ABS released the official national accounts that it was confirmed. This quarter’s negative growth follows the March quarter of negative growth. The extent of the contraction was much higher than anticipated particularly on the back of yesterday’s statement by the Reserve Bank of Australia’s Governor Philip Lowe on Monetary Policy that “the downturn is not as severe as earlier expected and a recovery is now under way in most of Australia” (2). 

The extent of the slowdown is attributed to the significant drop in household consumption by 12.1% in the June quarter and 2.6% in the 2019-20 financial year. This drop in household consumption is the largest quarterly drop recorded in national accounts and the first annual fall ever. This has been on the back of:

  • Restrictions of movements with international and domestic borders closures;
  • Restrictions on travel in to the workplace and having a large workforce working from their homes;
  • Limits on public gatherings in numbers, places and logistical requirements; and 
  • Heightened health concerns with suggestions, and requirements in some cases, of the wearing of masks.

These have reflected in the drop of consumers spending services by 17.6% while consumption of goods fell by 2.8% in the June quarter (seasonally adjusted). By category of services, sharp reduction in consumer spending on transport, accommodation and catering services by 88.2%, 77.5% and 55.7% respectively in June 2020. While the arts, sporting events, cinema admissions and gambling activities have fallen by 54.5% in the June 2020 quarter. 

Figure 1: Individual Services Consumption through the year, volume measures, original (ABS, 2020)

The drop in consumption is in part explained by the unprecedented 9.8% fall in the hours worked in the period cushioned in some part by the JobKeeper payment of $31 billion that was made in the June 2020 quarter. The continued uncertainty in the treatment or management of COVID-19, and its subsequent economic effects, are being reflected in the record household income to saving ratio of 19.8% – the highest since 1974. 

Australia’s economy is continuing to perform slightly better than other Organization for Economic Development (OECD) countries that have more stringent responses to COVID19. There is a negative relationship between the stringency index and the quarterly growth in GDP. Australia’s stringency index was 64 in the June 2020 quarter, much higher than the average index of 19 over the March quarter.

Figure 2: Stringency of government response and quarter-on-quarter growth in real GDP (ABS, 2020)

Figure 1 shows Stringency of government response and quarter-on-quarter growth in real GDP

The concern currently will be on the September 2020 GDP figure given the stringency level of 79.7 on the 26th of August 2020 (according to University of Oxford Coronavirus Government Response Tracker) (3). This figure is at the national level but Victoria’s stringency level would be expected to be significantly higher.

  1.  Australian Bureau of Statistics (2020), Australian National Accounts,
  2.  Reserve Bank of Australia (2020), Media Release, Statement by Philip Lowe, Governor: Monetary Policy Decision, Number: 2020-20, 1 September 2020, 
  3.  University of Oxford, Coronavirus Government Response Tracker, (2 September 2020).

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