Australia may have just side-stepped the path to a technical recession by the skin of its teeth after recording a small uptick in GDP growth over the June quarter.
Between 21 March and 21 June, the Australian economy grew by 0.7 per cent, according to the ABS’ latest figures.
“Gross Domestic Product (GDP) rose 0.7 per cent this quarter, reflecting the continued easing of COVID-19 restrictions and the recovery in the labour market,” the ABS said in a statement on Wednesday.
ABS head of national accounts Michael Smedes said the impact of the lockdowns were not reflected in the figures.
"Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter," Smedes said.
NSW announced a lockdown on 26 June, narrowly missing the official June quarter period.
The latest GDP figures have been highly anticipated with fears of a second recession rising as various cities and regions enter in and out of lockdown as health authorities battle to contain Delta COVID-19 outbreaks, though predictions have varied wildly.
Economists were forced to U-turn on their growth forecasts from July as lockdowns, particularly in NSW and later Victoria, were extended for several weeks and months.
Therefore predictions in the lead up to today’s figures varied more than usual.
Commonwealth Bank economist Gareth Aird predicted GDP would grow by 0.3 per cent for the quarter, while AMP Capital chief economist Shane Oliver was estimating a drop of 0.1 per cent.
Though predictions for the June quarter varied, economists are united about the outcome of September quarter figures: we’ll be seeing a steep drop.
“With the September quarter almost certain to see a large fall, the economy will have unfortunately slipped back into recession,” Oliver wrote in a recent note.
But since we were seeing a strong economic bounceback just before the recent spate of lockdowns hit, we should still see economic recovery faster than if the recession were a ‘genuine’ one, he said. “Reopening will unleash pent up demand.”
State by state: GDP growth
The Northern Territory recorded the highest growth of all the states and territories at 5.3 per cent.
But its rate of growth is the exception, with NSW recording the second-highest level of growth at 2.2 per cent followed by South Australia at 1.8 per cent.
The ACT grew the least, at 0.9 per cent, with Western Australia also trailing behind at 1.2 per cent.
Victoria, and Tasmania both grew by 1.4 per cent.
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Slower recovery ahead
While we saw a “roaring” recovery in early 2021, the recovery this time round won’t be as sharp, with Oliver describing demand as ‘restrained’ as Australia faces a more cautious reopening that must coexist alongside cases of COVID-19 within the community.
“The optics would be bad, and news of another recession would not be good for confidence,” Oliver said.
Last month, Aird signalled we would be seeing a slow and “patchy” recovery.
“The economic reopening, particularly in NSW, will be very different to exiting previous lockdowns,” he said.
“But things will look very different in Greater Sydney and potentially other parts of Australia when the current lockdown is over.”
A recession dodged, or merely stalled?
With economic activity sure to backslide in the September quarter, Australia may still see a recession if the December quarter also records negative GDP growth.
"While it is encouraging that the economy grew again in the June quarter, a significant contraction of near 4 per cent is expected in the current September quarter," said CommSec chief economist Craig James.
"It is hoped that an easing or end to lockdowns will occur later this month in the ACT, NSW and Victoria, allowing the economy to rebound in the December quarter," he added.
But if that doesn't happen, we'll enter into a technical recession, which is when a country records two quarters of consecutive negative GDP growth.
However, independent economist Stephen Koukoulas believes that this technical definition is in need of "fresh thinking" and should be redefined.
In a hypothetical example where GDP declines 1 per cent in Q1, grows 0.5 per cent in Q2, falls again by 1.5 per cent in Q3 then rises by 0.5 per cent in Q4, this would not be considered a recession per se.
"But over the course of that year, GDP is a hefty 1.5 per cent lower. The economy that experienced this profile for GDP would inevitably be littered with failed businesses and a sharp rise in the unemployment rate, probably by around 1.5 percentage points," Koukoulas wrote.
"This example would be a recession in its fairest and broadest measure."
Overall, the Commonwealth Bank estimates national GDP will grow 3.1 per cent in the 2021 calendar year overall before rising 3.8 per cent across 2022.
CEOs want a way out
80 Australian CEOs this morning signed and circulated an open letter to all levels of government calling them to chart a clear path out of lockdowns.
“Providing a light at the end of the tunnel will encourage more Australians to get vaccinated,” the open letter stated.
“We need to give people something to hope for, something to look forward to, something to plan around, and to be confident about their futures.”