GDP figures released on Wednesday showed the Australian economy shrunk by 0.3 per cent in the three months to March, driven largely by a 1.1 per cent fall in consumption – the biggest decline since 1986 – as social distancing restrictions were enforced and consumer fears around COVID-19 reached their peak.
Household savings increased by 5.5 per cent over the quarter as consumers sought a buffer for the impending economic crisis, and bans on international travel saw Australia’s services exports fall by a massive 12.8 per cent.
New business investment also fell by 0.8 per cent over the three months, with mining one of the few bright spots in the economy, seeing a rise in investment of 3.6 per cent.
Treasurer Josh Frydenberg said the figures were to be expected given the scale of restrictions introduced to combat the coronavirus pandemic, but was at pains to emphasise Australia’s economic contraction was significantly lower than almost every other developed market.
“The fact that the Australian economy only contracted by 0.3 per cent shows the economy’s remarkable resilience,” Mr Frydenberg said.
“Australia’s performance in the March quarter compares well to that seen in other nations, with negative growth of 9.8 per cent in China, 5.3 per cent in France, 2.2 per cent in Germany, 2 per cent in the UK and 1.3 per cent in the US. With 40 million jobless claims in the US over the last 10 weeks, the economic situation in that country and across the globe is severe indeed.”
Questioned on the potential outlook for the next quarter, Mr Frydenberg said he expected another “severe” decline in economic growth in the three months to June, meaning Australia would technically enter a recession by the end of financial year.
“We are now starting to see restrictions being eased, national cabinet has set out a three-step plan for removing [restrictions] which will see 850,000 people get back to work. But the June quarter economic impact will be severe, far more severe than what we have seen today,” he said.
“We are going to see a contraction in the June quarter which will be a lot more substantial than what we have seen in the March quarter.”
Mr Frydenberg said the government would provide another economic update in July, in tandem with the results of its review into the JobKeeper program.
“What we want to do is understand where businesses are in the recovery stage – we want to understand whether the $1,500 payment continues to be the right amount, bearing in mind some people are getting paid more than they would otherwise get by virtue of having a flat payment,” he said.
“In the context of an economy where restrictions are being eased and people getting back into work, we need to assess the continuation of that program.”
