The Australian economy is likely to be slowing in the second quarter leading up to the delta downturn
- Q2 GDP + 0.5%, forecast range -0.1% to +1.2%
- Y / Y hit historic highs of 9.2% based on effects
- The economy will contract in the third quarter as the locks bite
In fact, there is a non-trivial chance the economy is already in recession if Wednesday’s gross domestic product (GDP) data coincides with the weakest market forecast. Median growth of 0.5% is expected in the June quarter, while forecasts of a 0.1% decline up to a growth of 1.2% underline the uncertainty of age.
That would be another drop of 1.8% in the March quarter and an impressive 3.2% in the final quarter of 2020.
“The Australian economy was doing well for most of the June quarter, but then came the Delta variant,” said Gareth Aird, head of Australian economics at CBA.
“In all respects, the Australian economy is currently in an artificial recession while we are experiencing another major negative shock.”
While consumer spending and corporate investment were likely solid for the quarter, they were met by a flood of imports and depletion in inventories rather than an increase in production, which depressed headline GDP.
Fittingly at these weird times, the 9.2% annual growth is actually being dubbed the fastest in modern history, but only because last year’s first round of pandemic lockdowns caused a huge 7.0% decline that resulted from the calculation falls out.
With another round of lockdowns in Sydney, Melbourne and Canberra, the economy will shrink again.
“While flat to negative GDP pressures in the second quarter are a real risk, in terms of the economy, given the sharp decline we anticipate for the third quarter, which we put at around -3% q / q, that is far from behind Rearview mirror. ”, Said NAB chief economist Alan Oster.
Looking ahead, the key question is when the locks will end and how quickly activity will recover afterwards. The state of Victoria has signaled that restrictions will be extended beyond this week, while New South Wales plans to remain closed through September and likely through October.
This is longer than initially expected by the Reserve Bank of Australia (RBA), which had forecast the economy would only contract 1% this quarter.
The central bank may decide not to curb its bond purchases in September as planned, but with interest rates already at all-time lows of 0.1% it can hardly do anything more.
Prime Minister Scott Morrison’s Conservative government has made billions in disaster payments to businesses and workers, albeit at the expense of many more loans.
Additional reporting by Manzer Hussain and Vivek Mishra; Editing by Sam Holmes
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