GDP plummets 7%, the largest fall ever, as Australian recession begins

The Australian Gross Domestic Product fell seven per cent in the June quarter, the largest quarterly fall on record, according to figures released by the Australian Bureau of Statistics today.

This follows a fall of 0.3 per cent in the March quarter 2020, with Australia now officially entering a recession.

The biggest quarterly contraction on record has confirmed Australia’s first recession since the 1990s and its most severe economic blow since World War II.

Head of national accounts at the ABS, Michael Smedes said, “The global pandemic and associated containment policies led to a 7.0 per cent fall in GDP for the June quarter. This is, by a wide margin, the largest fall in quarterly GDP since records began in 1959.”

"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."

Net trade contributed 1.0 percentage points to GDP. Imports of goods fell 2.4 per cent, with falls in consumption and capital goods reflecting weak domestic demand. Imports of services fell 50.5 per cent and exports of services fell 18.4 per cent, due to restrictions on travel and tourism.

Public demand contributed 0.6 percentage points to GDP, driven by health related spending by the state and local government. Defence spending also increased as personnel were deployed to assist with management of the COVID-19 pandemic.

The household saving to income ratio rose to 19.8 per cent from 6.0 per cent, driven by the fall in consumption expenditure. Hours worked fell a record 9.8 per cent, outpacing the record 2.5 per cent decline in wages which were supported by JobKeeper payments. Social assistance benefits in cash rose a record 41.6 per cent, due to increased number of recipients and additional support payments.

General government net saving fell to -$82.6 billion from $1.2 billion in the March quarter 2020.

CBA was one entity that was off the mark with a less pessimistic outlook than the market consensus, which was a 6 per cent contraction for the economy.

Commonwealth Bank economist Kim Mundy believed GDP will have fallen by 5.4 per cent in the June quarter.

A month ago CBA changed their forecasts, with head of Australian economics Gareth Aird saying the Melbourne lockdowns have changed their thinking.

They cut the GDP growth forecast to -4.2 per cent for 2020, worse than the -3.8 per cent predicted before the lockdowns.

"There will be a huge disparity in economic outcomes between Victoria and the rest of Australia in Q3 20", Aird said.

Economist Lindsey David tweeted, "That GDP report was once-in-a-lifetime."

APAC economist Callum Pickering said, "over the past decade the Australian economy has expanded by just 1.7% a year on average. Adjusted for population growth and real GDP has increased by just 0.2% a year. Even before COVID-19 we had experienced a long period of relatively low growth.