Not your typical recession
National accounts

Expansion ends: After slipping by 0.3 per cent in the March quarter, the Australian economy contracted by 7.0 per cent in the June quarter (survey -6 per cent). It was the biggest quarterly decline in output since quarterly records began in 1959. The economy is now in recession. The economy fell 6.3 per cent over the year – the biggest annual decline for the economy since 1945.

Contribution to growth: The biggest contributions to growth came from net exports (+1.0 percentage points); public investment (+0.1pp) and government consumption (+0.6pp). But detracting from growth was household spending (-6.7pp); inventories (-0.6pp); dwellings (-0.4pp); business equipment (-0.5pp) and other private investment (-0.4pp).

Income: Real net national disposable income fell by 7.8 per cent in the June quarter to be down 6.9 per cent on the year. In nominal terms GDP fell by 7.6 per cent in the quarter and fell by 5.9 per cent over the year.

Productivity: GDP per hours worked rose by 3.1 per cent in the June quarter to be up by 4.1 per cent on the year.

Industry sectors: Fifteen of the 19 industry sectors contracted in the June quarter. The biggest contribution to the overall decline in output came from Transport postal and warehousing (-0.9pp) from Accommodation and food services (-0.8pp) and Administration and support services (-0.7pp). Output rose in Mining, Education and training; Public administration and safety; and Financial and Insurance Services

What does it all mean?

• This is not your typical recession. It hasn’t occurred because there has been some policy mistake – like the Reserve Bank leaving interest rates too high. Inflation remains under control – prices are neither surging or plunging. There has been no balance of payments crisis – record trade surpluses are being reported. And the federal budget was broadly balanced at the start of 2020. Rather the recession is the result of a community lockdown to battle a one-in-a-hundred-year pandemic. And the whole world has been similarly affected.

• Policymakers certainly aren’t sitting on their hands. An unprecedented amount of stimulus has been applied to the economy by governments and the Reserve Bank. Barring more second waves from the virus, the worst appears to be over for the economy. The hope over the coming months is that Victoria – and to a lesser extent, NSW, – can join the rest of the country in being relative ‘virus free’.

• It’s not your typical recession because home prices are still at or near record highs. Annual growth of retail spending is at 19-year highs. The Aussie dollar is just off two-month highs. And share prices are 36 per cent up from lows.

• The economic recovery has begun. But the path is uncertain and likely to be bumpy. The battle for normalcy has only just begun.

• We expect the jobless rate will rise from 7.5 per cent currently to around 9 per cent in the next few months. The aim will be to quickly get people back to work as the longer they are away from workplaces, the less employable they are likely to be.

• Somewhat perversely, there were two positive aspects in the data. Aussies saved more – the household saving ratio rose by 19.8 per cent in the quarter. Clearly it was hard to spend in lockdown but the government topped up people’s bank accounts. And productivity increased. GDP per hours worked rose 3.1 per cent. These are two elements that had been causing angst for policymakers in recent times.

Published by Craig James, Chief Economist, CommSec