Australia’s economy was weak before the pandemic, experts warn

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March 30 2020
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The Australian economy was stalling even before the COVID-19 outbreak, with the March quarter expected to show GDP shrink by 0.1 per cent, an industry expert has warned.

Australia’s economy was weak before the pandemic

The University of Melbourne’s nowcast has found that the Australian economy has suffered the impacts of the summer’s bushfires, giving a 2020 yearend nowcast growth rate of 1.6 per cent.

The findings reflect the initial impact of COVID-19 and show that Australia’s economy was already weak before the pandemic. The researchers expect the situation to worsen over the coming months, making a recession almost certain.

“The economic and financial effects of COVID-19 have been devastating.”

“However, the global economic landscape was weak before the virus. In the US, soft consumption and business investment had already led to significant weakness in longer-term US Treasury yields over the course of 2019,” said Dr Sam Tsiaplias, senior research fellow in the Macroeconomics Research Program.

“The coronavirus has solidified and augmented this weakness. GDP growth is expected to be negative for successive quarters.”

Retail sales and consumption growth continue to be weak

Annual growth in food and non-food retail spending declined in March, particularly for non-food spending.

This comes after Finder found that Australia has increased its spending in March by $13.5 billion as panic buys lead to empty supermarkets.

Consumer spending, in general, has been weak, and there are few signs that this weakness will abate in the short term.

Consumer sentiment, which tends to lead consumption, has been relatively weak in the past two months. The latest sentiment data reflects the recent bushfires but does not fully reflect the coronavirus. In any case, weak consumer sentiment growth is expected to have a negative incremental impact on the March quarter nowcast.

Weaker growth of commodity prices and stabilised trade

Commodity price growth was weak in January, seemingly back to its falling trend.

This has made it a weak contributor to output growth in the March quarter, coinciding with the weak export-to-GDP ratio.

Net exports in January continued to recede from their November high, although they have remained at a relatively high level since early 2019.

Exports for both resources and energy have improved (albeit with a moderation in their growth rates during 2019 relative to 2018). Overall, trade conditions in January contributed positively to the March quarter GDP nowcast.

The labour market remains relatively strong, but showing signs of weakness

One sign of the Reserve Bank’s greenshoots was the unemployment rate, which fell to 5.1 per cent, according to the ABS’ latest figures.

The difference in the numbers of full-time less part-time workers seems to have stabilised at the level observed just before the onset of the GFC, the University of Melbourne found. The recent strength in full-time employment is the primary positive contributor to March quarter GDP growth in 2020.

The state index suggests that economic conditions across major states are likely to worsen in the coming months as disruptions caused by the coronavirus outbreak filter through to economic activity.

The University of Melbourne is not predicting a strong uptick in the economy over the next quarter despite state and federal support topping the $100 billion mark.

“What we see now is just the beginning of what is to come when the negative impacts of the lockdowns to stem the spread of the outbreak start to take their toll on economic activity across major states.

“The announced stimulus packages, at both the federal and state levels, are encouraging and helpful to cushion the blow to the economy, particularly to small businesses and employees in retail and hospitality industries whose revenue and income will be most affected by the lockdowns,” concluded Dr Viet Nguyen, senior research fellow in the Macroeconomics Research Program.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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