Treasurer Josh Frydenberg has confirmed Australia is in the midst of its first recession in 29 years.
Speaking in Canberra on Wednesday after the latest GDP figures confirmed the Australian economy shrank by 0.3 per cent in the March quarter, Mr Frydenberg said that based on forecasts, the country was already in recession.
A technical recession was not due to be confirmed until the release of the June quarter GDP figures, but when asked if Australia was already in recession, the Treasurer said “yes”.
“That is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be,” Mr Frydenberg said.
The official March figures mostly predate the economic damage from the COVID-19 lockdowns, but include a retraction due to the summer’s devastating bushfires.
Gross domestic product grew just 1.4 per cent in the 12 months to March 31 as the economy took a hit from the bushfires and the beginning of the coronavirus crisis, the Australian Bureau of Statistics said on Wednesday.
“This was the slowest through-the-year growth since September 2009, when Australia was in the midst of the global financial crisis, and captures just the beginning of the expected economic effects of COVID-19,” ABS chief economist Bruce Hockman said.
Public demand contributed 0.3 per cent percentage points to GDP, driven by a 1.8 per cent rise in public spending as governments responded to the bushfires and the COVID-19 pandemic.
But Mr Frydenberg said that, despite the grim outlook, Australia was on track for a stronger recovery than other OECD nations.
“The fact that the Australian economy only contracted by 0.3 per cent shows the Australian economy’s remarkable resilience,” he said.
“Indeed, Australia’s performance in the March quarter compares very well to that seen in other nations, with negative growth of 9.8 per cent in China, 5.3 per cent in France, 2.2 per cent in Germany, 2 per cent in the United Kingdom, and 1.3 per cent in the United States.
“With 40 million jobless claims in America over the last 10 weeks, the economic situation in that country, and across the globe, is quite severe indeed. In Australia’s remarkable story of almost 29 consecutive years of economic growth, this is only the fourth negative quarter in that time.”
The GDP figures showed growth for the year slowed to 1.4 per cent.
That’s the slowest annual growth rate since September 2008, when Australia was in the midst of the global financial crisis.
The economic decline is only going to get worse, with most of the pain packed into the current quarter.
Mr Frydenberg said health measures adopted to protect Australians from the coronavirus had hit the economy hard.
“Saving lives was our priority, and that has been the result,” he said.
“Notwithstanding the success of the health measures that we have put in place, they have come at a significant cost, which is illustrated in the national account numbers today.”
Mr Hockman said Wednesday’s figures captured just the beginning of the expected economic blow from measures to contain the pandemic.
The size of the hit was cushioned by increased government spending, which added 0.3 points to GDP, and strong exports, adding 0.5 points.
But household spending dropped by 1.1 per cent over the quarter.
This was the first drop since December 2008 and the annual result of a 0.2 per cent decline was the weakest since March 2009.
There was an unprecedented fall in spending on services – as social distancing rules and travel bans were introduced – and investment in housing continued to drop.
The Treasurer will hand down an economic update in July, which is shaping as a mini-budget ahead of the main event on October 6.
The figures will be released alongside the findings of a review into the JobKeeper wage subsidy scheme, which could be in for a major overhaul.
“Any government decisions about the review will be incorporated into that statement the finance minister and I will make,” Mr Frydenberg said.
NAB head of markets research Ivan Colhoun said the size of the shock in April and May brought on an “instant recession”.
“You couldn’t travel, you couldn’t go to work, everything just stopped,” he said.
The Reserve Bank said the depth of the economic slump could be less than predicted.
But governor Philip Lowe has reiterated the highly uncertain outlook and again called for the federal government to keep up its fiscal support.