COVID-19 DIARY – THE RECESSION WE HAD TO HAVE

September 02

Wednesday.

If the definition of an economic recession was two consecutive quarters of downturn than Australia was officially in a recession. It’s first since 1991 which Paul Keating famously referred to as “The recession we had to have.” In that year the March quarter went backwards 1.3 per cent and in the June quarter 0.1 per cent. In 2020 there had been a decline of 0.3 per cent in the March Quarter and the in the June quarter……. 7 per cent. Three times more than the previous record record quarterly fall of 2 per cent in 1974.

A trade surplus and increased government spending had helped as much as it could but a massive plunge in private spending had hit the economy hard. A 12.1 per cent drop in household expenditure and a 17/6 per cent fall in services spending. Many businesses had been shut down for three months or operated within limitations, the accommodation and food sector took a hit of 39 per cent in the second quarter.

The biggest drop in private spending came from a massive 12.1 per cent plunge in household expenditure, led by a 17.6 per cent fall in services spending, as many of these businesses were shut for part of the three-month period and restricted for the rest of it.

Accommodation and food was by far the hardest hit sector, with output down a whopping 39 per cent in the three months to June 30.

Cafes and restaurants that were shut down often have staff that are not elligible for jobseeker or jobkeeper.

There was a 2.5 per cent drop in wages.

A former Virgin airline pilot Matt Purton had gotten work in a friend’s cafe and saw an income drop of 81 per cent advising, “a lot of things we never used to worry about are going to be luxury items we just can’t afford“.

Asia-Pacific economist Callam Pickering advised, “This economy is being held together with duct tape by JobKeeper and JobSeeker.

Treasurer Josh Frydenburg said, “We’ve done everything possible to cushion the blow for the Australian community from COVID-19.

The Australian Broadcasting Corporation reported with government payments boosting incomes, less activities and gatherings to spend money and increased uncertainty from the pandemic and the recession were driving people to save at significant rates. Twenty Australian dollars from every $100 earned, a significant increase up from $6 from every $100 at the start of the year.

Given the Jobseeker and Jobkeeper payments were to be scaled back Westpac Bank’s Senior Economist Andrew Hanlan thought this gave people, “a considerable buffer to draw upon in coming quarters.”

Oh really, well thank you Mr Hanlan, thank you very much.

Compared to other countries Australia’s downturn of 7.3 per cent was nothing compared to Spain and the United Kingdom who were both north of 20 per cent. The United States of America was under 10 per cent.

Deloitte Access Economics senior economist Sheraan Underwood drew upon the very clear linkĀ  between successfully combating the virus and helping your economy to recover.

The underlying equation is simple. The greater the success against the virus, the greater the success in protecting economies against the pandemic.

There were 406 Victorians in hospital, 18 in Intensive Care Units due to COVID-19.

-Lloyd Marken