Recession talk is premature but quick rebound likely: Josh Frydenberg

It’s too early to tell if we’ll avoid a recession this year but the economy is likely to rebound fast, Josh Frydenberg says.

Josh Frydenberg says ‘it won’t be surprising if the September quarter is negative’. Picture: Andrew Henshaw

Josh Frydenberg has conceded it is too early to tell whether Australia will avoid tumbling into a recession this year because of lockdowns but he is confident the economy will quickly rebound because of its underlying resilience and strength.

With Treasury estimating that lockdowns in three states are costing the economy $2.15bn a week, the Treasurer said it was too uncertain to judge whether the final months of the year would see growth contract because Covid was impossible to predict.

“Given the lockdowns across our two biggest state economies, NSW and Victoria, it won’t be surprising if the September quarter is negative,” he told The Australian in an exclusive interview.

“As for the December quarter, it’s too early to tell. We have seen the economy rebound strongly from prior lockdowns and have good reason to expect it will do so again. But Covid has taught us we never know what’s around the corner.”

This is a subtle shift in language from last week when the Treasurer expressed confidence that Australia would avoid a technical recession by accepting the September quarter growth would likely be negative but being optimistic the December quarter would be positive.

Consecutive quarters of negative growth in the three months to March and June 2020 saw Australia slip into its first ­recession since 1990-91.

The Australian can reveal that Treasury estimates the direct cost of lockdowns in NSW, Victoria and South Australia to be $310m a day. For NSW, the impact is estimated as $1.25bn a week, or about $180m a day, assuming both a stage four lockdown for Greater Sydney and 95 per cent of construction activity paused.

For Victoria, the impact is estimated to be $700m a week, or $100m a day with a stage four lockdown that includes stay-at home orders with all non-­essential retail and venues closed.

For South Australia, the impact is estimated to be $200m a week, or about $30m a day, assuming a statewide stage four lockdown with stay-at home orders, all non-essential retail and venues closed plus non-essential construction halted.

Mr Frydenberg said he remained “inherently optimistic about the fundamental strength of the economy” which had “consistently proved the naysayers wrong”, but he emphasised that the vaccine rollout was the key to securing jobs and businesses, and continued economic growth.

“Vaccination is Australia and the world’s ticket out of this crisis,” he said. “The Australian economy has shown remarkable resilience during the pandemic, having seen unemployment fall to 4.9 per cent, the lowest in a decade. This demonstrates that when we successfully suppress the virus, the economy bounces back. The only pathway to a sustained recovery is through vaccination.”

He has also not ruled out delivering an early budget, before May 2022, when the next election is due. Budgets are usually handed down in May. Mr Frydenberg delivered his first budget in April 2019, ahead of an election the following month.

“The timing of the budget will depend on the timing of the election, and that will be a decision of the Prime Minister,” he said.

This week, Mr Frydenberg will overtake Scott Morrison and Joe Hockey as the longest-serving Liberal treasurer since Peter Costello. He paid tribute to his successors, who had all dealt with challenges while steering economic and budget policy.

“I don’t see the time spent as Treasurer being an end in itself,” he said. “Far more important is what has been achieved during that time and the extremely challenging circumstances we have had to confront. Every treasurer has had their challenges whether at times of war or peace.”

He said his priority was to support economic growth and smooth out the recovery but he said the government’s commitment to repairing the budget bottom line, now deep in the red, had not been jettisoned. “The ­Coalition’s responsible fiscal management which saw the first balanced budget in more than a decade put us in a position to respond as required during Covid.”