Stats released by the Australian Bureau of Statistics (ABS) showed gross domestic product (GDP) lifted by 0.7 of a percentage point in the three months to June, pulling the country out of a recession which would be realised at the end of the September quarter, during which GDP is widely expected to contract between 2 per cent and 4.5 per cent this quarter.
June’s slight economic boost also propelled Australia’s overall GDP growth for 2020–2021 to 1.4 per cent.
But while the ABS has applauded the latest economic figures as generally positive, it warned that they preceded much of the nation’s current lockdown measures which have had a widespread impact on the economy.
Speaking to the nation on Wednesday, Treasurer Josh Frydenberg said Australia’s economy is 1.6 per cent above pre-pandemic levels and a strong rebound is expected despite these recent disruptions.
“The Australian economy’s fundamentals are sound, the Australian economy is resilient, and the Australian economy will bounce back once restrictions are eased,” the Treasurer said.
The Treasurer noted vaccinations remain key, with the economy said to be helped by the 80 per cent vaccination target.
“With strong progress on the vaccine rollout, there is light at the end of the tunnel. Those national accounts provide confidence that our recovery will get back underway once restrictions are eased,” he continued.
Mr Frydenberg noted that while he believes Australia will avoid a technical double-dip recession, today’s figures do not change the fact that the economy has tough times ahead.
GDP is the total market value of all finished goods and services produced within a country’s borders, made up of business, government and consumer spending and net exports, with the ABS showing all three categories recorded strong signs of growth in June.
Private demand contributed 1.0 percentage point to growth, while household spending added 1.1 per cent and contributed 0.6 of a percentage point to the overall GDP lift.
Public demand contributed 0.7 of a percentage point to growth, driven by continued investments in state and local infrastructure projects.
Government spending rose by 1.3 per cent, driven by health-related expenditure, while the gross value added (GVA) for the health industry rose by 2.0 per cent.
Net exports were a substantial drag on growth (-1 percentage point), with a fall in mining export volumes compounded by a growth in imports.
However, economists fear a mild lift in the GDP for the June quarter will not be enough to stem the losses forecast for the September quarter.
If the September quarter (which includes the months of July, August and September) produces a significantly negative GDP figure, Australia could possibly face a double-dip technical recession based on the December quarter.
VanEck Australia’s head of investment and capital markets, Russel Chester, is predicting Australia is still likely to go into a recession despite today’s figures.
“We will likely fall into a technical recession in the second half of the year, with almost half of Australia’s population subject to continuing stay-at-home orders, not being able to spend or move around. Consumption accounts for the majority of national GDP, so GDP will take a major hit over the remainder of the year,” he said.
He pointed to even stronger vaccination rates not necessarily leading to an increase in the economy opening up fully, with social distancing rules likely to limit growth.
“This will further exacerbate the inequality in the population between those working in different industries, with some like those in professional services and healthcare continuing to earn good incomes, while those in hospitality, retail and entertainment industries suffering more, losing jobs and income,” Mr Chester said.
Reaffirming this, CreditorWatch chief economist Harley Dale pointed out today’s results might be a mirage to tougher times ahead.
“GDP for the June 2021 quarter would look spectacular under normal circumstances. However, mid-year 2020 was ugly, as all businesses know, so the latest annual result was always going to look flattering,” Mr Dale said.
“With Victoria on its seventh lockdown and NSW — the engine room of Australia’s economy — also under lock and key, the adverse impacts of this situation will reverberate throughout the entire nation.”
