Australia is on the verge of another recession as GDP dramatically drops after lockdowns across the country
- Australia’s economy contracted by 1.9 per cent in the September quarter
- This was steepest decline since the 6.8 per cent plunge of June quarter 2020
- Sydney, Melbourne lockdowns caused third worst GDP decline since mid-1974
- Another fall in December quarter of 2021 would see Australia in recession again
Australia is at risk of sinking into another recession with the economy suffering the biggest contraction since the start of the pandemic.
Extended lockdowns in Sydney and Melbourne, to slow the spread of the Delta Covid strain, caused national gross domestic product to shrink by 1.9 per cent in the September quarter as consumer spending plunged.
Treasurer Josh Frydneberg said lockdowns had ‘heavy economic costs’.
This was the sharpest downturn since Australia’s economy shrunk by 6.8 per cent in the June quarter of 2020, following the national lockdowns and border closure.
The summer bushfires had caused the economy to fall by 0.3 per cent in the March quarter of last year, which saw Australia sink into recession for the first time since 1991.
The 1.9 per cent contraction in the September quarter was the third steepest in Australian Bureau of Statistics records going back to 1959, with a 2 per cent drop recorded in the June quarter of 1974 as the OPEC oil crisis began to affect Australia.
Australia is at risk of sinking into another recession with the economy suffering the biggest contraction since the start of the pandemic. Extended lockdowns in Sydney and Melbourne , to slow the spread of the Delta Covid strain, caused national gross domestic product to shrink by 1.9 per cent in the September quarter (pictured is Cabramatta in Sydney’s south-west in August)
Treasurer Josh Frydenberg said the national accounts data showed the ‘stark difference’ between states that were in lockdown and those that were not
Another contraction in the December quarter of this year, while very unlikely, would see Australia sink into recession again in a consecutive year for the first time since 1983.
A technical recession is defined as two consecutive quarters of negative growth.
New South Wales had the sharpest economic contraction of 6.5 per cent, having gone into lockdown in late June compared with a 1.4 per cent decline in Victoria which went into lockdown in August.
Mr Frydenberg said the lockdowns were to blame for the sharp economic decline.
‘Today’s national accounts reveal the stark difference in outcomes experienced between those jurisdictions that were in lockdown and those that were not,’ he said.
‘Today’s national accounts are a clear reminder of the heavy economic costs of lockdown.’
Consumer spending during the September quarter fell by 4.8 per cent, a level less severe than a 5.5 per cent forecast by economists, but this was the second worst decline on record.
Spending declined in 11 out of 17 categories with transport services demand plunging 40 per cent as consumption in cafes, restaurants, clothing and footwear fell by more than 20 per cent.
So far, the evidence suggests Australia won’t experience another contraction in the December quarter with post-lockdown retail sales in October surging by 4.9 per cent.
The bigger issue now is inflation as global Covid supply constraints push up the prices of consumer goods in the lead-up to Christmas.
CommSec chief economist Craig James said the Australian economy was likely to bounce strongly in the December quarter, with most prolonged lockdowns ending by October (pictured are shoppers at Sydney’s Pitt Street Mall after lockdown)
Mr Frydenberg said businesses had run down their inventories during the lockdowns but were not struggling to get cars, as a result of a global semiconductor shortage.
‘At the same time, it was harder for businesses to get these imports,’ he said.
‘We’re starting to see implications of some of the supply side constraints.’
Westpac senior economist Andrew Hanlan said that even during the lockdowns in Australia’s biggest cities, consumer spending was still resilient, with many opting for online purchases.
‘In terms of the key surprise – this was around consumer spending – which was down sharply, but not as much as anticipated,’ he said.
CommSec chief economist Craig James said the Australian economy was likely to bounce strongly in the December quarter, with most prolonged lockdowns ending by October.
‘Over November, Aussies embraced the new freedoms such as shopping at “bricks and mortar” stores at the Black Friday sales – putting forced savings to work,’ he said.
‘So it shouldn’t surprise if the economy rebounds in the December quarter by a similar or bigger magnitude as the September quarter contraction.’
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