News analysis: Australia records 7 pct contraction in GDP, marking historic recession
Australia recorded a 7 percent contraction in its gross domestic product (GDP) for the June quarter on Wednesday, officially marking the country's first recession in 30 years as COVID-19 took a staggering toll.
The contraction is the largest in Australia's recorded history and was at the upper end of what most economists were predicting, with virus lockdowns and international border restrictions impacting heavily.
"Our Australian economy has been savaged by the COVID-19 global pandemic and recession. It is delivering an awful and heartbreaking blow to Australians and their families all around the country," Australian Prime Minister Scott Morrison said in response to the figures.
Government spending has been credited with greatly lessening the impact on the broader economy by supporting the roughly one million Australians who lost their jobs due to the pandemic, and helping sustain some level of confidence.
However regardless of how quickly Australia bounces back from the recession, the impact is likely to be felt for several years at least -- although even that is dependent on future virus outbreaks and the availability of a vaccine.
As of Wednesday, Australia had succeeded in suppressing COVID-19 throughout most of the country, excluding the state of Victoria where strict lockdowns had seen daily case rates plunge to less than 100 since peaking at over 700 in early August. Australia's total number of COVID-19 infections stood at over 25,800.
Economist and CEO of the Grattan Institute Danielle Wood told Xinhua that Australia had fared better than many countries in its economic downturn, experiencing less severe outbreaks of the virus which were largely able to be contained through temporary lockdowns.
"Certainly if you look around the world there are countries that have had more sizable contractions in the June quarter than Australia and that's a function of how bad the health situation was," Wood said
"The extent and duration of lockdowns has been a really important driver of those different outcomes, as well as the government's response through putting in income support for households and businesses, as well as monetary policy supports."
In the June quarter Australian household spending fell 12.1 percent, led by a 17.6 drop in the service industries, notably bars and restaurants, which were severely hampered by lockdowns and other efforts to contain the spread of the virus.
"COVID has hit consumption through both the lockdowns, but also the lack of confidence, so people are saving rather than spending, even if they can go out," Wood explained.
Contributing to the damage was the closure of Australia's borders, which saw imports of services plummet 50.5 percent and exports of services dropping 18.4 percent in the June quarter, while bringing Australia's lucrative tourism and education industries to a grinding halt.
Wood explained that "propping up" Australia's economy were high levels of government spending, backed by low levels of debt leading into the pandemic.
Previous to the pandemic, Australia's net debt was below 20 percent of GDP, substantially lower than most other countries, giving the government vital wiggle room.
The government has used that fiscal flexibility to pay out billions of dollars to affected residents through the JobKeeper and JobSeeker packages, which most economists are encouraging the government to extend.
Also playing in Australia's favour has been the rapid economic recovery of its largest trading partner, China, which received close to half of all Australia's exports during the June quarter, led by record volumes of iron ore.
"Iron ore has been a big support to Australia's economic activity during this period and certainly while prices are high that's helping income flow back to Australia and it's certainly helping the federal government's budget position be a bit more rosy than it would have been," Wood said.
She added that China's pandemic recovery was incredibly important for Australia's economic outcomes, in addition to proving that it was possible to get the health situation under control and for economic activity to return relatively quickly.
"I think that sort of gives some optimism about what the world can look like if the virus is successfully managed," she said.
Looking forward, Chief Economist at BIS Oxford Economics Sarah Hunter told Xinhua that Australia's economy would continue to feel the weight of Victoria's virus outbreak in the figures for the current quarter and likely wouldn't return to pre-pandemic levels until 2022.
"Given the size of the downturn in Q2, we expect the recovery in Q3 to be very modest. Activity levels in (Victoria) have been severely depressed, which will put a drag on total output, and the impact is spilling over elsewhere," Hunter said.