Australia is on the brink of another recession as GDP falls dramatically following lockdowns across the country
- Australia’s economy shrank 1.9 percent in the September quarter
- That was the sharpest drop since the 6.8 percent plunge in the June quarter of 2020
- Lockdowns in Sydney and Melbourne caused the third-worst GDP contraction since mid-1974
- A further decline in the December quarter of 2021 would push Australia back into recession
Australia is at risk of sliding into another recession as the economy suffers the biggest contraction since the pandemic began.
Prolonged lockdowns in Sydney and Melbourne to slow the spread of the Delta Covid strain caused national gross domestic product to shrink 1.9 percent in the September quarter as consumer spending slumped.
Treasurer Josh Frydneberg said lockdowns had “high economic costs”.
It was the sharpest downturn since Australia’s economy shrank 6.8 per cent in the June quarter of 2020 following nationwide lockdowns and border closures.
The summer bushfires slumped the economy by 0.3 percent in the March quarter of last year, pushing Australia into recession for the first time since 1991.
The 1.9 percent drop in the September quarter was the third largest on Australian Bureau of Statistics records since 1959, with a 2 percent drop in the June quarter of 1974, when the OPEC oil crisis began to hit Australia.
Australia is at risk of sliding into another recession as the economy suffers the biggest contraction since the pandemic began. 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 percent in the September quarter (pictured is Cabramatta in south-west Sydney in August).
Treasurer Josh Frydenberg said the National Accounts data showed the “striking difference” between states that were on lockdown and those that weren’t
A further decline in the December quarter of this year, although highly unlikely, would plunge Australia into recession 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 after going into lockdown at the end of June, compared with a 1.4 per cent drop 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 show the huge difference in results between the jurisdictions that have been in lockdown and those that have not,” he said.
“Today’s national accounts are a stark reminder of the high economic costs of the lockdown.”
Consumer spending fell 4.8 percent in the September quarter, a level that was less sharp than the 5.5 percent forecast by economists, but it was the second-worst decline on record.
Spending fell in 11 out of 17 categories, with demand for transport services plummeting 40 percent as consumption in cafes, restaurants, clothing and shoes fell by more than 20 percent.
So far, evidence suggests Australia will not see another contraction in the December quarter as retail sales are expected to rise 4.9 per cent after October’s lockdown.
The bigger problem now is inflation as Covid global supply shortages push up consumer goods prices in the run up to Christmas.
CommSec Chief Economist Craig James said Australia’s economy is likely to rebound strongly in the December quarter, with most of the longer lockdowns ending by October (pictured are shoppers at Pitt Street Mall in Sydney after lockdown).
Mr Frydenberg said companies had been clearing stocks during the lockdown but were having no trouble getting cars due to a global semiconductor shortage.
“At the same time, it was harder for companies to get these imports,” he said.
“We’re starting to see the impact of some supply-side constraints.”
Andrew Hanlan, senior economist at Westpac, said that even during the lockdown in Australia’s largest cities, consumer spending was still resilient and many were choosing to shop online.
“In terms of the main surprise — it was about consumer spending — which has fallen a lot, but not as much as expected,” he said.
CommSec chief economist Craig James said Australia’s economy is likely to rebound strongly in the December quarter, with most of the protracted lockdowns ending by October.
“In November, Aussies embraced new freedoms, like shopping in bricks and mortar stores during Black Friday sales – and put forced savings into action,” he said.
“So it shouldn’t come as a surprise if the economy rebounds in the December quarter to a similar or greater extent than in the September quarter.”