Australia may just side-step another recession altogether so long as COVID-19 outbreaks don’t worsen, arms are jabbed and lockdowns are lifted in the final months of 2021, experts predict. But some are posing the question: does it even matter anymore?
The national economy grew by 0.7 per cent, according to June quarter GDP figures released last week, a figure more positive than many expected.
With September quarter figures sure to reveal the economic damage of the protracted lockdowns, the central question is whether December will also yield similarly negative growth.
This would see Australia confront its second recession in as many years, at a time when several other countries around the world are beginning to open up.
The Commonwealth Bank has downgraded its September quarter forecast to -4.5 per cent with expectations that Victoria’s lockdown will last through to the end of the month. Meanwhile, NAB predicts a fall of -3.5 per cent.
Experts tentatively optimistic on GDP growth for December quarter
Both banks believe we’ll see a bounceback in the December quarter. NAB predicts a “solid rebound” in the last three months of 2021, though it doesn’t put a figure on how much.
But this rebound isn’t a given, NAB analysts warned in a note.
“Precisely when restrictions will start to ease will depend on when vaccination targets are reached, which is uncertain,” the note stated.
“The pace of recovery will be dependent on how gradually restrictions are eased and whether households remain cautious – even assuming some reopening in Q4, it is likely GDP will remain lower over the second half.”
This sentiment was echoed by Judo Bank economic advisor Warren Hogan, who expects GDP figures of 0.5 per cent in the December quarter. If all goes well, November and December will see “strong growth”, especially as NSW and Victoria come out of lockdown.
“However, there are substantial risks to this projection and they are skewed to the downside,” he told Yahoo Finance.
“The main risk is that we do not see a strong bounce in economic activity, particularly consumer spending upon re-opening.”
People may continue to be cautious around hospitality and recreational activities, delaying the rebound and acting as a continued drag on the economy, he explained.
Meanwhile, states that currently have no or low numbers of COVID-19 may well see Delta outbreaks. “This will not only result in another drop in national economic activity … but effectively delays the national re-opening into 2022.”
Despite rising cases in Australia’s most populous state, NSW Premier Gladys Berejiklian has announced looser restrictions for some residents in the coming weeks. From 13 September, fully vaccinated residents who live outside LGAs of concern will be able to have outdoor gatherings of up to five people.
So as long as the national vaccination rollout keeps pace and we don’t see any “new COVID curveballs”, we should see a rebound in December, according to CEDA chief economist Jarrod Ball.
But, like Hogan, Ball believes we shouldn’t expect growth in the December quarter – if there’s any at all – to be V-shaped.
“The outlook for December is difficult to predict, but we can't take for granted that we will see a bounceback of the magnitude that we saw last year,” Ball told Yahoo Finance.
‘Recession’: Does it even matter anymore?
A rising number of voices are arguing that the definition of a recession needs a rethink, including independent economist Stephen Koukoulas.
“Reflecting on recent business cycles, it is time for fresh thinking,” he said in a recent piece for Yahoo Finance.
Take a hypothetical example where GDP in Q1 drops; Q2 sees a rise; growth falls again in Q3; but Q4 etches a small increase.
“Under the ‘two consecutive quarters’ definition, the economy has not fallen into a recession,” Koukoulas said.
“But over the course of that year … The economy that experienced this profile for GDP would inevitably be littered with failed businesses and a sharp rise in the unemployment rate.”
Deloitte Access Economics partner Stephen Smith believes there is “still a very real chance” of a second recession, but dismisses its significance.
“Whether we do or don’t [enter recession] is a moot point,” Smith said.
“Recessions are just definitional, while lockdowns, and the pain they inflict on many people, are reality. And so we should think about how we support those Australians doing it tough.”
Australians who received the Coronavirus Supplement last year effectively had their government welfare doubled, but aren’t receiving the same level of support anymore.
He urged the Government to do more to support these Australians. “It’s not just the right thing to do but will provide a much-needed boost of dollars flowing through the economy when Australia’s two most populous states reopen.”