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Is another recession looming?

The Australian economy has demonstrated extraordinary resilience over the past 18 months.

Economy Australia

In the lead-up to the Delta lockdowns, Australia was the only developed country to have gone into this year’s Delta lockdowns with both GDP and employment higher than before the pandemic hit early last year.

However, since June, sustained, repeated lockdowns in Sydney and Melbourne have had a dire impact on our economy, specifically hitting segments such as the retail sector which accounts for a significant proportion of GDP.

How significant has the impact been?

Well, Victoria and New South Wales have been in sustained, and repeat lockdowns since early June and these two states combined account for about two-thirds of Australia’s national GDP.

GdpSo, what happens when two-thirds of the economy are essentially on pause for almost an entire quarter?

Nothing good, that’s for sure.

The question on everyone’s lips now, is, will the national economy, which has been, almost uniquely, resilient to the impact of the pandemic compared with other developed economies, finally succumb to the downward pressure?

Is another recession looming?

There’s no easy way to say it.

Experts are forecasting a hard landing for the September quarter results.

The ABS recently revealed the June monthly results – a fall of 1.8 per cent nationally, driven by a 3.5 per cent fall in Victoria and a 2 per cent fall in New South Wales – and these figures are a firm indicator that the quarterly results are not going to be pretty.

The Commonwealth Bank head of Australian economics, Gareth Aird, has forecast a fall in GDP of 0.7 per cent in the September quarter, accompanied by a rise in unemployment.

NAB chief economist Alan Oster concurs with the view that September will deliver a negative number, but he believes it will be a bigger fall, somewhere around 1 per cent.

And when one quarter is in negative growth, there’s a risk that the following quarter could also deliver a negative growth figure.

This, my friends, is a recession.

Close call?

But it may not be as simple as all that.

Australia Economy And Financial Market GrowthAird believes that the easing of restrictions in Sydney and Melbourne could lead to a vigorous rebound in economic activity, with the lead-up to Christmas becoming a period of expansion for the national economy, driven by a busy retail sector.

A lot will hinge on jobs figures.

And jobs figures are becoming a little murky of late as the number becomes increasingly unrepresentative of the actual total of unemployed people.

The latest unemployment figures released by the ABS fell from 4.9 per cent in June to 4.6 per cent in July.

And this is the lowest seasonally adjusted unemployment figure since 2008. Should be considered good news, right?

According to the ABS the main reason for the fall was that “many people gave up looking for work during lockdowns, with the participation rate dropping 0.2 percentage points, to 66 per cent”.

recession-australia-note-money-economy-squeeze-tighten-save-saving-budget-cutABS’s Bjorn Jarvis said: “There were big falls in New South Wales, in both employment (-36,000) and unemployment (-27,000), with the labour force reducing by around 64,000.

"In addition, hours worked in New South Wales fell by 7.0 per cent.”

BIS Oxford Economics is forecasting a significant rise in the ABS unemployment figures to be released later this month (September 2021).

This will be a significant indicator for the question of a recession.

No more lockdowns?

The rebound in retail figures and any glimmer of hope of rising employment will also rely very heavily on whether there are any more lockdowns in New South Wales and Victoria.

Melbourne Lockdown

Epidemiologists are not confident that October and November will be lockdown-free as the virus continues to spread.

But there are indications from political leaders that the appetite for lockdowns as a solution to community transmission of COVID is close to fully sated and they are looking for a way to transition to a life beyond the lockdown.

Leaders at the national cabinet last month agreed to a plan that would begin to reopen the country and end large-scale lockdowns once 80 per cent of the eligible population was vaccinated.

Prime Minister Scott Morrison has mentioned previously that having 80 per cent of the country vaccinated by November is achievable.

ABC modeling says late October is achievable for 70 per cent and to get to 80 per cent of eligible people vaccinated, November 15 is likely, based on current vaccination rates.

So, the race is on to get people vaccinated and out, spending in the shops before Christmas arrives.

This will be a significantly contributing factor to preventing the second quarter of negative growth (presuming September delivers a negative number).

About Andrew is a leading finance specialist who holds a Diploma of Financial Planning (Financial Services). With over 32 years of experience in finance, Andrew has been acknowledged by the mortgage industry with multiple awards. Visit IntuitiveFinance.Com.Au
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