Daily Commentary BY THE CURVE TEAM –

Record Run is Over

4th of June, 2020

Australia’s record run of uninterrupted growth is set to come to an end.

The national accounts data for the first quarter was released yesterday, confirming that the economy went backwards in the first quarter. Panic buying going into the end of the quarter wasn’t enough to keep the growth rate positive with the economy falling by 0.3%. With growth expected to fall considerably in the second quarter as the lockdowns spread, the data means Australia will now experiences its first official recession in almost 30 years.

What is troubling about the data is that it confirms that the economy was already slowing substantially before the health crisis really took hold. It also showed that consumers were already paring back spending and saving more as incomes were being hit. That is a cocktail that will be sure to leave the Australian economy with a hangover as the containment measures subside and we emerge on the other side.

By the numbers, the economy slowed even more on a per capita basis, reinforcing that population growth continues to help boost aggregate demand in Australia. With immigration set to be considerably lower over the months ahead, this will be just another headwind to the recovery. The growth figures could have been much worse had imports not fallen substantially more than exports, which mean next exports actually added 0.5% to the final figure.

It is clear that the economy is going to need more support to get through the current downturn. Beyond that, more will need to be done. Government spending in the interim can keep the economy muddling along. However for a sustainable uplift in growth to ensue over the years ahead, more widespread policy reform will be required. Simply pulling forward demand with lower rates and government stimulus won’t keep us moving forward and improving living standards forever.

David Flanagan

Director - Interest Rate Markets