Sep 10 2020
Australia’s National Accounts released by the ABS have confirmed that Australia experienced its second consecutive quarterly decline in GDP in the June quarter, with the country officially entering a recession. GDP declined by a record 7.0% in the June quarter, with the impact of COVID-19, ongoing lockdowns and travel restrictions weighing heavily on economic activity. The June quarter decline saw GDP fall 0.2% for 2019-20, breaking Australia’s streak of 28 years of continuous economic growth. Sectors of the economy that were hit hardest in the June quarter included the transport, accommodation and food services and arts and recreation services sectors.
Household consumption expenditure, which is the largest contributor to GDP fell by a record 12.1% in the June quarter. Spending on services fell by 17.6%, while spending on goods fell by 2.8%. Investment in new and used dwellings fell by 7.3% in the quarter, the largest decline since December 2000. Australia recorded a trade surplus for the June quarter with net exports contributing 1.0% to GDP. However, overall trade declined with net imports falling by 12.9%, led by a 50.5% decline in imports of services. Exports of goods fell by 3.5% and exports of services fell by 18.4%.
Despite deteriorating economic conditions, gross disposable incomes increased by 2.2% in the June quarter, supported by a 41.6% increase in social assistance benefits, including through the JobKeeper and JobSeeker schemes. Coupled with weak consumer sentiment, disposable income growth saw the household savings ratio rise sharply, increasing by 19.8% to the highest level since June 1974. Pessimism among consumers has been contributing to an increasing savings rate, as households bolster their finances as a buffer against potential unemployment or reduced working hours. The ABS Labour Force Survey showed the official unemployment rate had risen to 7.5% in July. However, the official rate does not include workers who have been stood down or employed persons who worked zero hours due to having no work. If these groups were included, the unemployment rate would have been 8.3% in July, after peaking at 11.8% in April. Consumer sentiment is expected to improve as COVID-19 restrictions ease. The Westpac-Melbourne Institute Consumer Sentiment Index showed consumer sentiment is starting to recover, rising by 18% to 93.8 in early September.