Australia markets open in 6 hours 1 minute

    +59.40 (+0.74%)

    +0.0027 (+0.41%)
  • ASX 200

    +60.70 (+0.79%)
  • OIL

    +0.96 (+1.24%)
  • GOLD

    +21.50 (+0.92%)
  • Bitcoin AUD

    +2,106.50 (+2.04%)
  • CMC Crypto 200

    +27.33 (+1.84%)

Second Australian recession now a ‘genuine’ risk: Economists

Treasurer Josh Frydenberg sits with his head in his hands, pedestrians cross the road in the Sydney CBD.
Treasurer Josh Frydenberg believes Australia will avert a second recession, however economists warn risks remain. (Images: Getty).

Australia’s economy could fall into its second recession in as many years if the COVID-19 lockdowns fail to end within weeks, economists have warned.

The country will technically enter recession after two consecutive months of negative growth, and Federal Treasurer Josh Frydenberg is already flagging Australia’s GDP growth will be in the red for the July-September quarter.

Frydenberg said on Thursday that the most recent lockdowns affecting Sydney, Melbourne and South Australia will “have a hit on the economy”.

“We’ll see that in the future jobs data as well as in the GDP growth numbers,” he told the ABC.

“Our expectation is that these lockdowns are costing around $300 million a day, which is a very high price. And, of course, we’re not out of it just yet.”


Sydney and surrounds entered its lockdown on the 26th of June, while Melbourne entered lockdown on 15 July, and South Australia announced lockdown restrictions on 20 July, meaning more than 13 million residents across Australia are now under stay-at-home orders.

“We were probably expecting that the September quarter is a negative – let’s wait and see what happens in the weeks ahead,” Frydenberg also told Sunrise.

“To have your two biggest states, New South Wales and Victoria, in lockdown is a big blow… Again, that is going to play out in many ways, but that’s why our economic support is there.”

Treasury estimates released over the weekend predict GDP will take at least a 1 per cent hit over the September quarter.

December quarter the one to watch

Prime Minister Scott Morrison believes Australia will manage to return to growth by the December quarter.

“I spoke to the governor of the Reserve Bank only this week and the deputy governor with the Treasurer, and they share an outlook, as we do, and that is while these impacts of the lockdowns will be here in this quarter, in the quarter that follows, should we continue to be on the path we’re on, in increasing our resilience, then we can expect that to turnaround in the December quarter,” Morrison said on Wednesday.

However, economists are less confident.

Market Economics managing director and economist Stephen Koukoulas said that while it “remains unlikely” Australia will etch two consecutive quarters of falling GDP, it does remain a “genuine risk”.

“We do know the following for the late 2021 December quarter: exports are softening as China slows and this will likely be the case in the December quarter; the rise in unemployment now may linger, meaning consumer spending will not bounce back much,” he told Yahoo Finance.

“Importantly, unlike in 2020, there is no extra stimulus coming from interest rates or fiscal policy. Any bounce will be severely restricted because of this.”

He said population growth, which is currently near zero, will also act as a drag on growth, while slowing construction activity as building schemes expire may also limit potential.

March quarter could deliver unexpected sting

The length of the lockdowns and whether financial support increases with tightened or prolonged restrictions will be the key indicators of whether December will record negative growth, AMP Capital chief economist Shane Oliver told Yahoo Finance.

While the vaccine does offer some hope, it’s more likely that any economic recovery will be fuelled by post-lockdown spending, as has been seen around the world and following the long national and Victorian lockdowns of 2020.

“There’s another technical risk. Last year we almost avoided a recession but we got there because of the technical contraction in the March quarter,” Oliver said.

That was partly due to weaknesses triggered by the early 2020 bushfires: it didn’t take much for the economy to slip into negative, given the national lockdown towards the end of March.

However, a similar technical contraction could potentially unfold in the June 2021 quarter. Coupled with a near-inevitable September contraction, there is potential for a recession to unfold.

“There is a non-trivial risk that the lockdowns we saw starting in Victoria in late May going into June, and then at the end of the month in New South Wales, Queensland, Darwin and Perth could knock the June quarter into recession,” Oliver said.

“I think that’s unlikely, but it is possible, and then you get a recession that way.”

The Australian Bureau of Statistics will release the GDP figures for the June quarter on 1 September.

Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter.

Image: Yahoo Finance
Image: Yahoo Finance