Australia could be heading towards another technical recession amid estimates that 550,000 workers have been stood down during lockdowns in New South Wales and Victoria.
AMP chief economist Shane Oliver downgraded his outlook for the economy over the weekend and said in an emailed note to clients that a double-dip recession in 2021 was now more likely than not.
It came as Treasurer Josh Frydenberg warned state and territory leaders to stick to the national plan to ease restrictions once 70 per cent of the adult population is vaccinated or else add to the economy’s ills.
“Learning to live with the virus is our only hope. To delay and deny that fact is not only wrong but incredibly unrealistic,” Mr Frydenberg told the Nine Newspapers.
“It’s in no one’s interests for states to be on different tracks when it comes to opening up. It would be ridiculous in the extreme to be able to travel to Canada but not Cairns, or Singapore but not Perth.
“The world is opening up, Australia will open up … Opening up as one country and in accordance with the plan will not only give people hope but provide a springboard for our economic recovery.”
Dr Oliver has forecast the economy to shrink by 0.1 per cent in the June quarter and by 4.0 per cent in the September quarter.
The technical definition of a recession is two consecutive quarters of economic contraction, with estimates suggesting the lockdowns in NSW and Victoria are costing the country about $2 billion every week.
“While it’s a close call, we now expect a return to technical recession in Australia,” Dr Oliver said.
“The spread and extension of the lockdowns, which will now cost the economy an estimated $25 billion since May, saw us revise down our September quarter GDP forecast to -4 per cent a week ago.
“A combination of softer readings for some GDP components point to a small -0.1 per cent fall in June quarter GDP as well, which is a risk we flagged five weeks ago.”
Dr Oliver said falls in housing investment and net exports would likely outweigh growth in household consumption, government spending and investment in plants and equipment.
But data to be released over the next week could “blow our June quarter GDP estimate around,” he said.
“It’s a close call.”
A major economic contraction in the September quarter is a foregone conclusion given NSW will have spent almost all of it in lockdown and Victoria more than half of it.
This means whether Australia enters its second technical recession of the pandemic depends on how the economy responds in the June and December quarters.
Mr Frydenberg says he is “hopeful and confident” of a strong rebound in the December quarter if restrictions are eased as expected, while market estimates for the June quarter range from +1.2 per cent to -0.1 per cent.
The ABS will release the June quarter result on Wednesday.
If Victoria’s lockdown ends by the start of October, Commonwealth Bank is forecasting growth of 3.75 per cent in the December quarter after a 4.5 per cent drop in the September quarter.
But independent economist Saul Eslake said the debate over whether Australia will experience a technical recession is academic and misleading.
Recession definition misleading
Mr Eslake said the lockdowns were already having a crippling effect on businesses and workers, regardless of whether an arbitrary definition was met.
“Most people wouldn’t know consecutive quarters of negative GDP if they fell over them in the street,” he told The New Daily.
“But most people know what a rise in the unemployment rate of 1.5 per cent or more in 12 months or less looks or feels like.”
Based on Mr Eslake’s calculations, Australia’s effective unemployment rate has risen from 5.7 per cent in May to 8 per cent in July.
This definition counts people as unemployed if they worked zero hours in July for economic reasons, or dropped out of the labour force since May because they gave up looking for work.
Commonwealth Bank, meanwhile, estimates 550,000 workers have so far been stood down as a result of lockdowns in NSW and Victoria.