Australia in recession: Economic plunge worse than feared, huge decline due to COVID crisis

PM Scott Morrison said it is a “devastating day for Australia” as the nation records its biggest economic plunge since World War II.

Economists knew today’s economic figures were going to be bad, but the actual news is much worse than anyone feared.

Australia’s finances have been hit with the biggest quarterly fall on record and the steepest annual plunge since the end of World War II.

Prime Minister Scott Morrison said the economic figures represented a “heartbreaking” day for the nation.

“This is a devastating day for Australia,’’ he told Parliament. “Our Australian economy has been savaged by the COVID-19 global pandemic and recession. It is delivering an awful and heartbreaking blow to Australians and their families all around the country.

“Australians know why we are now in a COVID-19 recession. And they also know, as the government has known, that this day, as I said, would come. The government has acted to protect lives and livelihoods.”

And when you compare the recession we’re now in to others, the severity of the situation is clear.

“How does the COVID-19 crisis compare to Australia’s earlier recessions? We don’t know how long the recovery will be but certainly the decline has been much larger and faster than anything we’ve seen before,” Callam Pickering, economist at Indeed, said.

How this recession compares to the others.

The release of the June national accounts data this morning revealed the catastrophic extent of the coronavirus crisis.

Data paints a picture of an economic bloodbath, with the economy contracting by a staggering seven per cent through the quarter. That’s the worst-ever result.

It follows a modest 0.3 per cent contraction in the March quarter.

Previously, the biggest drop was in 1974, when the Australian economy contracted by just 2 per cent in the June quarter.

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It means we are now in the grip of our first recession in 30 years – amid the worst yearly growth contraction since WWII.

The economic disaster is even more severe than expected by experts and even the Reserve Bank.

Economists had predicted the figures to show a five to seven per cent contraction, although the majority expected a six per cent fall in the quarter and 5.2 per cent fall annually, with the final result at the higher end of the range forecast.

“The global pandemic and associated containment policies led to a 7.0 per cent fall in GDP for the June quarter,’’ Head of National Accounts at the ABS, Michael Smedes said.

“This is, by a wide margin, the largest fall in quarterly GDP since records began in 1959.”

The coronavirus crisis has decimated Australia’s economy. Picture: NCA NewsWire / Ian Currie

A sombre Treasurer Josh Frydenberg said the GDP figures were “heartbreaking”.

“Behind these numbers are heartbreaking stories of hardship, being filled by everyday Australians as they go about their daily lives,” Mr Frydenberg said.

“Be it the tourism operator in Cairns. The tradie in Melbourne. The cafe worker in Adelaide. The domestic flight attendant in Sydney. They have all been hit hard by COVID-19.

“The road ahead will be long, the road ahead will be hard, and the road ahead will be bumpy.”

But without the JobKeeper wage subsidy, Mr Frydenberg said 700,000 more Australians would be out of a job.

The PM also struck an optimistic note in parliament, arguing that the recovery would come as the economy reopened.

“Australia will recover and Australia will grow again and the jobs will come back, that plan is built on the resilience and strength and the enterprise of the Australian people,’’ he said.

Mr Morrison was much more savage about Labor leader Anthony Albanese’s calls not to slash JobKeeper.

“I note the jeers and the laughter of those opposite on the most devastating day for Australia,’’ Mr Morrison said.

“I note the politicking of those opposite, Mr Speaker, on this day. The only people who seem to be in a pleasant state of mind today, is the opposition.

“The each way bets of the Leader of the Opposition, he said JobKeeper should be extended but it should be transitioned. He said it should be higher and it should be lower, What the Australian people know is the each-way bet planned of the Leader of the Opposition is no-one that you can trust in a crisis.”

The JobKeeper and JobSeeker programs to support Australian households and businesses resulted in record payments from the public to the private sectors.

Welfare payments rose a record 41.6 per cent, due to increased number of recipients and additional support payments.

Spending on services fell by a whopping 17.6 per cent, with falls in transport services, operation of vehicles and hotels, cafes 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 Smeddes said.

Hours worked also fell a record 9.8 per cent.

The catastrophic impact of the coronavirus crisis on the economy has revealed in stark detail.

The economic data is much worse than originally feared. Picture: Getty Images

Finance Minister Mathias Cormann said the tough shutdowns were a necessary part of controlling the spread of the virus.

“I’m not going to predict the figures ahead of the release this morning, but we do need to expect a severe contraction and we know what has caused it – economies around the world have been hit very hard by the impact of the coronavirus pandemic,” he told Sunrise this morning.

“We were hit by an unexpected crisis which came out of nowhere and clearly the first priority was to protect people’s health and save people’s lives by suppressing the spread of the virus and that was absolutely necessary,” Mr Cormann said.

Labor treasury spokesman Jim Chalmers said it was a dark day for Australian families.

“We are in the midst of a deep and devastating recession and that has consequences for millions of Australians,” Dr Chalmers said.

Australia is facing tough economic times ahead as Melbourne continues stage four COVID-19 lockdowns. Picture: NCA NewsWire/ David Crosling

Chief economist for BIS Oxford Economics Dr Sarah Hunter said a recovery would not be easy.

“Looking ahead, it is clear that the path back from the COVID-19 recession will be protracted. Growth in the September quarter will be weighed down by the lockdown in Victoria, and beyond this continued health concerns, ongoing restrictions and the dialling back of income support will all weigh on the economy. We expect it to take until early 2022 for activity to return to pre-pandemic levels,” she said.

However, Deloitte Access Economics senior economist Sheraan Underwood said it was important to put today’s news into a global context.

“The underlying equation is simple. The greater the success against the virus, the greater the success in protecting economies against the pandemic,” Mr Underwood said.

“At the other end of the scale, the hit to most economies is rather larger than that seen in Australia.

“The defence of Australian lives and livelihoods has seen us thread the needle. Australia has seen both less economic damage and relatively fewer lives lost than most nations, including the US, the UK and most of Europe, including Sweden, which has taken a different path than many others.

“Australia’s fight against the virus hasn’t been perfect, but it has still been much more successful than in most other nations around the world.”