Business Daily Media

Men's Weekly

.

How a tightening of wallets pushed Australia into recession

  • Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

A go-slow on spending sent the economy backwards 0.3%[1] in the first three months of this year, only the fourth such decline since Australia was last in recession in the early 1990s.

Treasurer Josh Frydenberg says Treasury has told him the next three months, the June quarter that we are in at present, will see a “far more severe[2]” contraction, one private sector forecasters believe could be as high as 10%[3].

Asked whether that meant Australia was already in recession, he said it did.

Quarterly GDP growth since 1990

How a tightening of wallets pushed Australia into recession ABS 5206.0[4] Most unusually for an economic downturn, incomes rose[5] throughout the quarter, pushed higher by a 6.2% increase in government payments related to COVID-19 and the bushfires, and an 11.1% increase in insurance payouts as a result of bushfires and hailstorms. Household incomes even rose in per capita terms, by 0.1% after abstracting for population growth. But rather than spend more, Australian households dramatically increased saving in the quarter, pushing the household saving ratio up from 3.5% to 5.5% and pushing down household spending 0.2%. Household savings ratio How a tightening of wallets pushed Australia into recession Commonwealth Treasury Spending on goods actually increased over the three months as Australians stocked up on essentials including toilet paper in March. The production of “petroleum, coal, chemical and rubber products” surged 8.1%[6] as consumers stocked up on cleaning and disinfectant products. But spending on services plummeted, led down by dramatic falls in spending on transport and hotels, cafes and restaurants. Household consumption, March quarter How a tightening of wallets pushed Australia into recession Commonwealth Treasury Spending on transport services (airlines and the like) fell 12.0%. Spending on hotels, cafes and restaurants fell 9.2%, each the biggest fall on record. “Production” in these industries fell 4.9% and 7.5%. Profits fell 6.8% and 14.2%. Spending fell on ten of the 17 consumption categories. Household consumption by category, March quarter How a tightening of wallets pushed Australia into recession Commonwealth Treasury Most of the changes took place at the very end of the March quarter. A new index of the “stringency” of COVID-19 containment measures released with the national accounts shows these ramped up only in the final two weeks. Most have been in place for the entirety of the June quarter to date, suggesting the impacts on spending and production will be a “lot more substantial[7]”, in the words the treasurer used in the national accounts press conference. ABS stringency of containment measures index How a tightening of wallets pushed Australia into recession ABS 5206.0[8] Were it not for government spending, which has climbed 6.2% throughout the year, the plunge in March-quarter GDP would have been much more severe. Calculations of the Bureau of Statistics suggest it would have been twice as severe[9], a March quarter decline of 0.6% rather than 0.3%. General government expenditure How a tightening of wallets pushed Australia into recession Commonwealth Treasury The treasurer described Australia as “on the edge of the cliff” in the March quarter, facing “an economist’s version of Armageddon[10]”. The treasury had been contemplating a fall in gross domestic product of 20% in the June quarter. Australia has avoided that fate by acting on health and the economy early. Its fall in GDP of 0.3% in the March quarter was one-third the OECD average. International comparisons, real GDP growth, March quarter How a tightening of wallets pushed Australia into recession Commonwealth Treasury The treasurer has scheduled an economic update[11] for July 23 which will include the result of a review of the JobKeeper program. Asked whether it could be referred to as a mini-budget, he said it could be. Read more: Our needlessly precise definition of a recession is causing us needless trouble[12]

References

  1. ^ 0.3% (www.abs.gov.au)
  2. ^ far more severe (www.tveeder.com)
  3. ^ high as 10% (markets.jpmorgan.com)
  4. ^ ABS 5206.0 (www.abs.gov.au)
  5. ^ rose (www.abs.gov.au)
  6. ^ 8.1% (www.abs.gov.au)
  7. ^ lot more substantial (www.tveeder.com)
  8. ^ ABS 5206.0 (www.abs.gov.au)
  9. ^ twice as severe (www.abs.gov.au)
  10. ^ an economist’s version of Armageddon (www.tveeder.com)
  11. ^ economic update (ministers.treasury.gov.au)
  12. ^ Our needlessly precise definition of a recession is causing us needless trouble (theconversation.com)

Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

Read more https://theconversation.com/how-a-tightening-of-wallets-pushed-australia-into-recession-139960

Changing the World One Bite At a Time: IKU Turns 40

One of Australia’s first plant-based, chef-led eateries and now ready meal provider IKU is celebrating its 40 year anniversary with the business e...

Three generations marking 45 years in hot-air balloons

Australia’s leading hot-air balloon company is celebrating 45 years in the sky and its 700,000th passenger, driven by the passion of father-son du...

Workplace DMs, Reinvented: Deputy Messaging, Purpose-Built For Shift-Based Teams

Deputy, the global people platform for shift-based businesses, has launched Deputy Messaging, a fully integrated, real-time communication tool designe...

Revolutionizing Fulfillment: How Virtual Warehousing is Changing the Game?

The e-commerce landscape is evolving more rapidly than ever, and the way businesses are managing their fulfillment is also revolutionizing. At the...

SME lender Dynamoney welcomes new CEO, Brett Thomas

Strengthens growth ambitions and signals expanded offering Dynamoney, a leading commercial finance provider for Australian SMEs,  has today appoint...

The cost of ignoring AI governance in business

Artificial intelligence (AI) is no longer the promise of a distant future: it's active, embedded, and already shaping decisions across industries. H...

Sell by LayBy