Australian GDP falls by a record 7 per cent

Australian GDP falls by a record 7 per cent

The Australian economy is officially in recession after the country's gross domestic product (GDP) fell by 7 per cent in the June quarter.

The contraction is the largest on record and follows a dip of 0.3 per cent in the March 2020 quarter.

According to the Australian Bureau of Statistics (ABS) the combined effect of the pandemic and government responses led to movements of an "unprecedented size".

"The global pandemic and associated containment policies led to a 7.0 per cent fall in GDP for the June quarter," says head of national accounts at the ABS Michael Smedes.

"This is, by a wide margin, the largest fall in quarterly GDP since records began in 1959."

Private demand detracted 7.9 percentage points from GDP, driven by a 12.1 per cent fall in household final consumption expenditure.

Spending on services fell 17.6 per cent, with falls in transport services, operation of vehicles and hotels, cafes and restaurants.

"The June quarter saw a significant contraction in household spending on services as households altered their behaviour and restrictions were put in place to contain the spread of the coronavirus," says Smedes.

In addition, Net Trade contributed 1.0 percentage points to GDP, imports of goods fell 2.4 per cent, with falls in consumption and capital goods reflecting weak domestic demand.

Imports of services fell 50.5 per cent while exports of services fell 18.4 per cent, due to restrictions on travel and tourism.

General government net saving fell to -$82.6 billion from $1.2 billion in the March quarter 2020.

However, according to analysis from Deloitte, the contraction to GDP needs to be put into perspective.

Only a small number of countries have seen less damage to their economies amid the COVID-19 pandemic including China, Vietnam, Taiwan and South Korea.

GDP growth rates over the same quarter of the previous year international comparison (via Deloitte)

"The underlying equation is simple. The greater the success against the virus, the greater the success in protecting economies against the pandemic," says Deloitte Access Economics senior economist Sheraan Underwood.

"At the other end of the scale, the hit to most economies is rather larger than that seen in Australia. 

"The defence of Australian lives and livelihoods has seen us thread the needle. Australia has seen both less economic damage and relatively fewer lives lost than most nations, including the US, the UK and most of Europe, including Sweden, which has taken a different path than many others."

Despite today's economic update, the All Ordinaries are up 1.58 per cent at 6,240.500.

Updated at 12:53pm AEST on 2 September 2020.

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