By Duncan Murray, Hao Yalin, Guo Yang
SYDNEY, June 5 (Xinhua) -- Australia is set for its first recession in 29 years, the country's Treasurer confirmed this week following the release of first quarter data. However, economists say that the full extent of COVID-19 is most likely yet to be seen.
Official figures released on Wednesday showed Australia's gross domestic product (GDP) shrank by 0.3 in the first three months of the year. A contraction in the second quarter is considered a near certainty, with the bulk of COVID-19's impact expected to be felt.
Technically Australia will not know if it is in a recession, defined by two consecutive quarters of economic decline, until September when the figures for the current June quarter are released.
However, when asked if the country was in a recession, Treasurer Josh Frydenberg said, "The answer to that is yes -- and that is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be."
As has been typical of the COVID-19 crisis, the exact impact on Australia's economy has been difficult to predict. The country has experienced a much faster flattening of new infections and subsequent reopening of the economy than was first thought.
"We previously expected lockdown conditions to remain in place until late Q3, so about six weeks longer than has been the case. And we also anticipated a more sustained downturn in consumer confidence linked to a more severe outbreak of coronavirus," Chief Economist at BIS Oxford Economics Sarah Hunter told Xinhua.
"In terms of the trajectory for the economy, the high frequency data suggests that activity troughed in late April/early May and is already recovering, and we think the risk of a substantial second wave of infections is low."
While data from the first three months of the year showed a relatively soft impact on Australia's economy, National Australia Bank Group Chief Economist Alan Oster says that it is only a small, and likely less ugly, part of the picture.
"What's relevant is what's happened since then," Oster told Xinhua. "And there we're seeing, in our data anyway, massive falls in consumption -- they're down around about 12 percent."
"We're beginning to basically say that we think GDP in the second quarter is down about 8.5 percent."
Australia closed its borders to all non residents on March 20, followed by the introduction of social distancing restrictions, and then rolling closures of non-essential businesses such as restaurants and pubs.
With the country now in June, and in the process of reopening those businesses, it appears the bulk of COVID-19's impact will be seen in that second quarter period.
"We're assuming that what's going to happen is you are going to open up some of the clubs and pubs, so essentially hospitality. Domestic tourism will also improve. I suspect retail will improve a little bit as well as it's reopened," Oster said.
"And those are some of the key drivers. But it's depending on exactly when they reopen and how things go."
To help moderate the effects of COVID-19 and sustain employees forced out of work by the virus, the federal government introduced a historic 70-billion-Australian dollar (48.9 billion U.S. dollar) stimulus package, dubbed the "JobKeeper Program."
Of concern moving forward, to both Hunter and Oster, is the sharp end to the current policy which they say will require more thought and planning.
"We are concerned about the size of the policy cliff edge that is currently legislated; the end of the JobKeeper program and the enhanced JobSeeker payments in October, will be a significant negative drag on household income, and there is a risk that the labour market will not have recovered enough to shake this off," Hunter said.
Also of concern is the country's construction industry, particularly residential construction, which was already in a downturn and is likely to experience a sustained slump.
"If you basically stop external immigration, you half the growth rate in the population. So instead of growing at 1.5, it's 0.7. And so that will cause a lot of grief for construction," Oster explained.
In terms of longer term recovery, Hunter predicts Australia's GDP could return to pre-COVID-19 levels by the end of 2021, while Oster says mid-2020. And both agree that rather than a V-shape, Australia's return to normality looks more like a U. Enditem
