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Lee Sue Ann, Economist at UOB Group, assessed the latest GDP figures in Australia.

Key Quotes

“The Australia economy contracted by the most on record in with the second quarter, with the recovery from the country’s first recession in almost 30 years buffeted by Victoria state’s renewed COVID-19 outbreak and lockdown. GDP plunged 7.0% q/q from the first three months of the year, the largest fall in quarterly GDP since records began in 1959.”

“In the details, private demand detracted 7.9ppts from GDP, driven by a 12.1% q/q fall in household final consumption expenditure. Spending on services fell 17.6% q/q, with falls in transport services, operation of vehicles and hotels, cafes and restaurants. Net trade contributed 1.0ppts to GDP. Imports of goods fell 2.4% q/q, with falls in consumption and capital goods reflecting weak domestic demand. Imports of services fell 50.5% q/q and exports of services fell 18.4% q/q, due to restrictions on travel and tourism.”

“Australia’s record-run of avoiding a recession during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008-2009 Global Financial Crisis, has come to an end, as it now joins much of the world in succumbing to a pandemic-induced downturn. The Australian government has stepped up to support the economy including its signature JobKeeper wage subsidy program designed to keep workers attached to firms as it tries to maintain employment connections until activity can resume.”

“With the exception of Victoria, restrictions have been partially eased in the country. This should enable the economic recovery to begin. That said, the pace of recovery will be a very slow one. The deterioration in the labour market is likely to weigh on consumption going forward and how quickly confidence recovers will be important. Uncertainty surrounding the duration and impact from Victoria’s lockdown will be a risk factor for 3Q20. Beyond that, fiscal and monetary policy support will remain crucial factors in determining the strength of the recovery, though we do not see GDP reaching pre-virus levels until early-2023. For now, our forecasts remain for GDP to fall by 4.5% this year before rising gradually to 2.2% in 2021.”

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