Responding to the latest figures from the Australian Bureau of Statistics in a press conference, Treasurer Josh Frydenberg said the numbers are “extremely sobering and indeed devastating”.
However, he also noted that back in May, the Treasury’s expectations were even worse, contemplating a collapse of GDP of more than 20 per cent in the June quarter, while in May it was forecasting a 10 per cent fall in GDP in the June quarter.
“But with the spread of the virus being contained on the 8 May, national cabinet agreed a three-step framework to achieve a COVID-safe Australia and the lifting of restrictions by July,” Mr Frydenberg said.
“As restrictions were gradually eased over the June quarter, the recovery began to take shape. Consumer confidence had increased for nine consecutive weeks and has now recovered 70 per cent of its fall.
“Business confidence had recovered nearly 80 per cent of its fall. And of the 1.3 million who had either lost their job or saw their hours reduced to zero, more than half were back at work by July.”
Mr Frydenberg said it gives the Treasury confidence that Australia is better placed than most other nations, and that by containing the virus, it can chart a pathway to economic recovery.
However, he warned of a bumpy road ahead, saying the fall in the June quarter doesn’t include the economic impact from the stage 4 restrictions imposed by the Victorian government in early August.
“This is something that will weigh heavily on the September quarter numbers,” Mr Frydenberg said.
The ABS said the 7 per cent fall in the June quarter is the largest quarterly fall since its records began in 1959.
“The global pandemic and associated containment policies led to a 7.0 per cent fall in GDP for the June quarter,” said ABS head of national accounts Michael Smedes.
“This is, by a wide margin, the largest fall in quarterly GDP since records began in 1959.”
Private demand detracted by 7.9 percentage points from GDP, driven by a 12.1 per cent fall in household final consumption expenditure, ABS figures revealed.
Spending on services fell by 17.6 per cent, with falls in transport services, operation of vehicles and hotels, cafés and restaurants.
“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,” Mr Smedes said.
The economy contracted by 0.3 of a percentage point in the March quarter, before much of the shutdown measures to combat the spread of COVID-19 were implemented.
It was already assumed even then that Australia was already in a recession as much of the economic shutdown occurred in the June quarter. However, today’s GDP figures make it official.
This means Australia is in its first recession in 29 years, when it recorded two consecutive quarters of negative GDP growth for the March and June quarters of 1991.
In addition, the Parliamentary Budget Office conceded that any future modelling of an economic recovery remains highly uncertain because it includes assumptions of no further fiscal measures than the ones already in place.
Earlier this week, Mr Frydenberg said the lockdown in Victoria has been a “massive drag” on national economic recovery, with $10 billion to $12 billion expected to be wiped from the GDP.