Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
Treasurer Josh Frydenberg expects Australia’s economic contraction in Wednesday’s national accounts won’t be as bad as other countries.
Forecasts centre on an economic downturn of around six per cent during the June quarter as a result of restrictions to tackle the coronavirus pandemic, although economists concede there is a degree of uncertainty about the result.
But it would compare with the enormous 20 per cent slump in UK gross domestic product and double-digit percentage falls in France, Canada, Germany and the US.
“COVID-19 has wreaked enormous havoc across the global economy,” Mr Frydenberg told parliament on Tuesday.
“The expectation is that the fall here will not be as large as we’ve seen in other countries around the world, indicating the remarkable resilience of the Australian economy.”
Even so, if economists are right it will mark the biggest decline since the Australian Bureau of Statistics started plotting the national accounts in the late 1950s.
Reserve Bank governor Philip Lowe went even further back in history, saying the economy is experiencing the biggest contraction since the 1930s.
“As difficult as this is, the downturn is not as severe as earlier expected and a recovery is now under way in most of Australia,” Dr Lowe said in a statement following the central bank’s monthly board meeting.
The sharp fall in the June quarter follows a more modest 0.3 per cent decline in the March quarter but will constitute a technical recession – two consecutive quarters of contraction.
As expected, the Reserve Bank board left the cash rate at a record low 0.25 per cent and will continue to target market interest rates at the same rate through the buying of bonds.
However, the Reserve Bank has extended its term funding facility to allow banks to have access to additional funding at a fixed rate of 25 basis points for three years, which will be available until the end of June 2021 and beyond the original September cut off date.
New ABS figures show Australia’s export performance has been a bright spot for an economy in recession, while government spending was also strong.
Net exports – exports minus imports – are expected to add one percentage point to economic growth in the June quarter.
It came as the nation’s current account trade surplus ballooned to $17.7 billion in the June quarter compared with $9 billion in the previous three months.
The expected confirmation of a recession was blamed for a decline in consumer confidence in the past week.
The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – fell 2.7 per cent, ending two weeks of gains.
But ANZ head of Australian economics David Plank was encouraged to see confidence in Victoria bucking the trend as the number of new COVID-19 cases in Melbourne continued to drop.
While Victorians may be in a better mood, separate data shows the state’s house prices remain in decline and its manufacturers are proving a drag on the sector’s national recovery.
The national CoreLogic home value index fell 0.4 per cent in August, with Melbourne prices falling 1.2 per cent.
The Australian Industry Group performance of manufacturing index also fell by 4.2 per cent to 49.3 points in August, just below the 50-point mark that separates a contraction in activity from an expansion.
Victoria’s index fell 9.3 points to 44 but NSW and South Australian remained in expansion territory and Queensland improved.