For the first time in 28 years, Australia’s economy plunged into recession due to the Covid-19 pandemic.
Australian Gross Domestic Product fell 7 percent for the second quarter of the year registering the sharpest drop on record since the country began recording its fiscal growth in the 1950s.
While past global economic downturns have not affected the land down under, the effect on businesses by the Coronavirus pandemic is an exemption.
The country went into a recession after making a sharp 7 percent dive in the June quarter following a fall of 0.3 percent in the March quarter of 2020, according to figures released by the Australian Bureau of Statistics on September 2.
Australian Prime Minister Scott Morrison told the Parliament on Wednesday that the latest economic report heralds “a devastating day for Australia.”
The Australian Bureau of Statistics reported that the combined effect of the pandemic and the community and government responses to it led to movements of unprecedented size, not only in GDP but also in many of the other economic aggregates in the June quarter National Accounts.
Head of National Accounts at the ABS, Michael Smedes said:
“The global pandemic and associated containment policies led to a 7.0 percent fall in GDP for the June quarter. This is, by a wide margin, the largest fall in quarterly GDP since records began in 1959.”
Despite the report, the Australian government promised continued support to those affected by the recent pandemic. The government has been supporting Australian households and businesses in record payments to the public to the private sectors.
Australia’s economy demand for goods drop
The ABS report says private demand diminished 7.9 percentage points from the GDP, driven by a 12.1 percent fall in household final consumption expenditure.
Spending on services also affected Australia’s economy as it fell 17.6 percent, with falls in transport services, operation of vehicles and hotels, cafes, and restaurants.
Mr. Smedes added that the June quarter saw a significant contraction in household spending on services as households altered their behavior while restrictions were put in place to contain the spread of the coronavirus.
Net Trade contributed 1.0 percentage points to GDP while imports of goods fell 2.4 percent, with falls in consumption and capital goods reflecting weak domestic demand.
Imports of services fell 50.5 percent and exports of services fell 18.4 percent, due to restrictions on travel and tourism.
Public demand contributed 0.6 percentage points to GDP, driven by health-related spending by the state and local government. Defence spending also increased as personnel was deployed to assist with the management of the COVID-19 pandemic.
The household saving to income ratio rose to 19.8 percent from 6.0 percent, driven by the fall in consumption expenditure.
Hours worked fell a record at 9.8 percent as Australia’s economy brace for huge impacts of the pandemic, outpacing the record 2.5 percent decline in wages which were supported by JobKeeper payments.
Social assistance benefits in cash rose a record 41.6 percent, due to an increased number of recipients and additional support payments.
General government net saving fell to -$82.6 billion from $1.2 billion in the March quarter 2020.
The fall in the June quarter reflected the government economic response to the COVID-19 pandemic, which resulted in record-high subsidy payments of $55.5 billion and reduced tax income received.
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