Rays of light in this recession we were bound to have

A recession was inevitable when the coronavirus shut down shops, other businesses and the global economy. But it may not last long. Here’s why.

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It’s such a small number, 0.3.

You can often round it down to zero if you want to.

But 0.3 was all it took to signal Australia is in its first recession in 29 years.

Last week’s release of official economic data showed our gross domestic product (GDP) fell 0.3 per cent in the three months to March 31.

It’s the first leg in the definition of recession: two quarters – six months – of an economy shrinking. And, given what’s happened with the coronavirus pandemic in April and May, a recession is certain.

When massive industries such as tourism, hospitality and fitness can’t open their doors for a couple of months, it’s obvious the economy will go backwards and that’s why Treasurer Josh

Frydenberg could bluntly say we’re in a recession.

Empty shops in March and April’s COVID-19 lockdown meant a recession was inevitable. Picture: Asanka Ratnayake/Getty Images

Forecasts are for a total GDP slump of at least 8 per cent, but this recession has some rays of hope.

Firstly, there’s a good chance that when recession is finally confirmed by the June quarter GDP figures – not due until September – we’ll already be bouncing back.

Some economists think our economy may already be growing again, but warn the COVID-19 financial fallout will make life tough for 6-12 months.

The speed in which many businesses are returning to normal, and their customers flocking back, is spectacular, and largely thanks to our effort as a nation in controlling the coronavirus so far.

More health success will breed more financial success.

A second feel-good observation comes when you compare our recession with other key countries.

While Australia’s economy fell 0.3 per cent in the March quarter, CommSec economists say the US economy shrank 5 per cent, Britain fell 7.7 per cent; Germany 8.6 per cent; and China 33.8 per cent.

And they didn’t have to deal with devastating bushfires that Australia did last summer.

However long it lasts, this recession will cause financial pain for many through unemployment and underemployment.

Labor has criticised the government for failing to acknowledge the financial cliff Aussies face from late September when JobKeeper is set to stop, banks’ six-month mortgage repayment holidays end and the expanded JobSeeker unemployment benefit shrinks back to normal from late October.

Shoppers slowly returned to malls in May. Picture: Naomi Jellicoe

Be assured that the Morrison Government knows this too, but it’s not going to make big new announcements just because the Opposition wants it to.

And it won’t let us fall off a financial cliff. It’s already saved $60 billion because JobKeeper isn’t costing as much as first thought – that’s a pile of money to offer targeted stimulus where needed, such last week’s announcement of $670 million of grants for home building and renovations.

Banks won’t send struggling households to the wall, either, as that would damage their reputations and their business. My bet is that banks will extend repayment holidays for another six months to those who really need them.

The latest March quarter data also shows that household savings rates have increased, a big win in combating debt. And productivity per person improved – a win for employees who have been working from home in recent months.

@keanemoney

Originally published as Rays of light in this recession we were bound to have