Australia is now officially in its worst recession since World War II. This is the killer blow that turned the COVID downturn into a disaster.
The Australian economy has officially entered into a recession with the latest national accounts figures confirming the worst contraction since the Second World War.
Australia’s gross domestic product (GDP) fell 7 per cent for the June quarter, revealing the financial wounds inflicted upon the economy from the initial lockdown sparked by the coronavirus pandemic.
It is the largest quarterly drop on record and is higher than what was anticipated by the Reserve Bank of Australia.
Mr Frydenberg said household consumption fell in 10 of the 17 consumption categories.
He said social distancing and travel bans saw large falls in spending on transport services, hotels, cafes and restaurants.
“(There were) small increases in an alcoholic beverages, furnishings and household equipment, recognising that people are staying at home,” Mr Frydenberg said.
“People are going down to the local store buying themselves a new computer and use new TV and obviously, drinking more at home as opposed to the local pub.”
Mr Frydenberg said the instant-asset write-off scheme aided spending woes prompted by the pandemic.
Welfare benefits rose by 42 per cent in the quarter, contributing 4.4 percentage points to growth in household disposable income.
Household savings ratio also increased to a record high of 19.8 per cent in the quarter.
“The health-related restrictions significantly affected our tourism and our international education industries,” he said.
“With services trade heavily impacted by travel bans on both inbound and outbound travel, travel-related trade has almost ceased, resulting in sharp falls in both imports and exports.”
Mr Frydenberg said the grim figures released on Wednesday were “extremely sobering and indeed devastating”.
“Our record run of 28 consecutive years of economic growth has now officially come to an end,” Mr Frydenberg said.
“COVID-19 has wreaked havoc on our economy and our lives like nothing we have ever experienced before. But there is hope,” he said.
“We have done everything possible to cushion the blow for the Australian community from COVID-19.”
But he said the numbers were expected to be worse.
Treasury in March contemplated a collapse of GDP of greater than 20 per cent in the June quarter, and in May forecast GDP to fall by over 10 per cent.
However, Mr Frydenberg warned the road ahead would be bumpy with the economic impact of stage four lockdowns in Victoria not included in the figures.
Opposition treasury spokesman Jim Chalmers said: “It beggars belief that the worst recession since the Great Depression has not been enough for the Morrison Government to bring forward a proper jobs plan”.
“The most important test of the Morrison Government’s management of the recession and its aftermath is what happens to jobs.”
Australia’s GDP contraction is better than the slumps felt in Canada, Germany and Britain.
The Australian Bureau of Statistics said COVID-19 responses had led to movements of “unprecedented” size in many other economic indicators.
“The June quarter saw a significant contraction in household spending on services as households altered their behaviour and restrictions were put in place to contain the spread of the coronavirus,” ABS head of national accounts Michael Smedes said.
“This is, by a wide margin, the largest fall in quarterly GDP since records began in 1959.”
After the release of the grim figures, Labor leader Anthony Albanese attempted to move a motion in the House of Representatives to acknowledge the one million Australians out of work and 400,000 more expected to lose their jobs come Christmas.
“The Reserve Bank governor says unemployment is going to be higher for longer, and still around 7 per cent in two years’ time,” Mr Albanese said.
“The Prime Minister is withdrawing support for Australians and the economy and … (Labor) therefore calls on the government to develop a plan to create jobs for Australians, instead of withdrawing support and cutting wages.”
However an attempt to debate it was shut down by the government.
CommSec chief economist Craig James said community lockdown measures brought on the recession, rather than inflationary pressures or policy slips.
“It hasn’t occurred because there has been some policy mistake — like the Reserve Bank leaving interest rates too high,” he said.
“It’s not your typical recession because home prices are still at or near record highs.”
Household consumption expenditure dropped 12.1 per cent, while services spending plummeted 17.6 per cent.
Hours worked fell a record 9.8 per cent, outpacing the 2.5 per cent slump in wages. Wage growth figures have been supported by the federal government’s JobKeeper wage subsidy scheme.
Fiscal spending by the government to curb the impacts of the pandemic caused government savings to fall to negative $82.6 billion at the end of the quarter. In the prior quarter, government savings were at $1.2 billion.
In the March quarter, Australia’s gross domestic product had fallen 0.3 per cent, which showcased the initial inflictions caused by the shutdown.
Mr Frydenberg has previously said Australia’s numbers would not be as bad as other countries, telling parliament on Tuesday it indicated the “remarkable resilience of the (Australian) economy.”
Finance Minister Mathias Cormann told the Today show Wednesday morning that economies around the world have been hit very hard by the impact of the coronavirus pandemic.
“We are in a much better position than many other countries all around the world,” he said.
“The UK in the June quarter experienced a contraction of 20 per cent in the one quarter.
“Across other … countries it is 10 per cent on average.”
Senator Cormann said Australia had been heading in the right direction in June and early July.
But the outbreak in Victoria did set the nation back and had a “severe negative impact” on the economy in the September quarter.
Opposition treasury spokesman Jim Chalmers on Wednesday said it was going to be “a dark day”.
“This will be the worst quarterly GDP since these records were first kept,” he told ABC Radio National.
“We are in the midst of a deep recession.”
Mr Chalmers criticised the Morrison Government for not having a jobs plan.
He said telling unemployed Australians the circumstances weren’t as bad as other countries was “meaningless”.
Mr Chalmers called on the government to reconsider the reduction in the JobKeeper rate saying there were some measures the government had done right but “not everything”.
Federal Treasury is understood to be waiting for Victorian Premier Daniel Andrews to reveal his road map out of lockdown, before announcing an economic recovery plan.
Reserve Bank of Australia governor Philip Lowe in his monthly monetary statement on Tuesday said Victoria’s stage four lockdowns would have a profound effect on the state’s regional economy.
The RBA is expecting the downturn sparked by the pandemic will cause unemployment to peak at 10 per cent.
The Morrison Government has already extended JobKeeper and JobSeeker payments until March next year due to the prolonged slump induced by COVID-19.
Legislation splitting JobKeeper into two tiers and extending the wage subsidy scheme for an additional six months has passed the parliament this week.
The $1500 flat fortnightly rate will end later this month. After that, people who worked less than 20 hours a week before the pandemic will be paid $750 a fortnight, and those who were working more than that will receive $1200.
Mr Frydenberg previously noted states and territories needed to be more flexible around border arrangements.
But Mr Chalmers has backed Queensland Premier Annastacia Palaszczuk’s decision to keep the borders closed.