Australia is officially going through its first recession in nearly three decades, as the June quarter GDP numbers showed that the economy contracted by 7 percent; the worst decline on record and slightly worse than most economists expected.
Also, the Bureau of Statistics figures released today confirmed a 0.3 percent decline in the March quarter, which means that the Australian economy has slipped back for two consecutive quarters, in line with a common definition of a recession.
It is the first time this has happened since 1991, although the size of the contraction is much larger than the “recession we had to witness,” as the economy shrank by 1.3 percent and 0.1 percent.
The decline in quarterly GDP of 7 percent was three times worse than the previous largest drop of 2 percent in June 1974.
The record decline in economic activity was driven by the private sector, much of which has been shut down or restricted due to efforts to contain the COVID-19 pandemic.
Private demand took 7.9 percentage points from the economy, while increased trade surplus and government spending returned 1 and 0.6 percentage points, respectively.
Sarah Hunter of BIS Oxford Economics noted: “As expected, government spending and net exports provided support, but this was drowned out by the collapse in private sector demand.”
The largest drop in private spending came from a massive 12.1 percent drop in household spending, led by a 17.6 percent drop in spending on services, as many of these businesses were closed for part of the three month period and tied for the rest of the period.
Savings rate nears 50-year high
With fewer ways to spend money, and amid the financial worries of the pandemic, families were saving about $ 20 for every $ 100 they earned, up from $ 6 at the start of the year.
This is the highest saving rate in nearly half a century, according to Capital Economics.
Westpac’s Andrew Hanlan added that it is giving people “a lot of room to tap into in the coming quarters”.
This increase in savings was also driven by a 2.2 percent increase in disposable household income, as payments for social assistance jumped 41.6 percent due to an additional coronavirus supplement and a rise in the number of people who seek unemployment compensation.