GDP In Focus With A Technical Recession No Longer A Certainty

By Glenn Dyer | More Articles by Glenn Dyer

The economy is front and centre this week in Australia with the monthly Reserve Bank meeting tomorrow, the March quarter national accounts and GDP figures on Wednesday and a string of important data releases for April and May.

Those April and May figures will give us a clearer sign of how the impact of the COVID-19 pandemic and associated lockdowns have hit the economy.

Tomorrow, the RBA will again leave rates on hold at 0.25% and reaffirm that it’s ultra-easy monetary policy will remain in place for as long as it takes the economy to recover. – three years at least according to many economists.

There won’t be a rate cut, despite the increasingly desperate comments from some economists and business commentators for a drop into negative territory.

AMP Chief Economist, Shane Oliver said in his weekly note “RBA Governor Lowe has repeatedly indicated that 0.25% is the effective lower bound and that negative rates are “extraordinarily unlikely” so the RBA won’t be cutting rates and given the weakness in the economy its way too early to think about raising rates.

In fact, we see the cash rate stuck at 0.25% for the next three years at least,” he said.

On Wednesday’s national accounts and GDP report, Dr. Oliver wrote “…the big question will be whether Australia can avoid a technical recession by recording a small increase in March quarter GDP (due Wednesday), ahead of an almost certain contraction in the June quarter followed by a likely recovery from the September quarter and so avoid the “two consecutive declines in quarterly GDP” definition of a recession.

“Our base case is that GDP will contract by -0.3% quarter on quarter dragging annual growth down to 1.4% year on year with falls in consumer spending, business investment, housing investment and inventory more than offsetting small gains in public spending and net exports.”

“But it’s a close call and we may just sneak into positive territory which would pave the way for Australia to retain its record run without a technical recession.

By way of contrast, the National Australia Bank’s economics team is forecasting a fall of 0.1% for the March quarter GDP. “This would be the first quarterly fall since Q1 2011 but will be dwarfed by a large fall in Q2 suggested by more timely indicators,” The NAB said in a Friday forecast on the national accounts.

“We continue to expect a large fall in GDP in Q2 of around 8.5% before a small rise in Q3 and stronger growth in Q4. However, we only expect the level of GDP to recover to pre-crisis levels in mid-2022. As such, we expect only a partial recovery in the unemployment rate and for it to remain high at 7.3% by the end of 2021.

“…Australia does seem to have fared better than many other comparable countries (despite the bushfires and hit to Chinese tourism in the March quarter) and this looks to have continued into the June quarter,” Dr. Oliver wrote.

“Even a -0.3% fall in March quarter GDP would be a small fall compared to the hit seen in most other countries with the US -1.2%, the Eurozone -3.8% and Japan -0.9%.

Tuesday sees the release of the final three bits of data for the National Accounts – business indicators including quarterly figures on wages and salaries, sales, and business inventories.

As well the March quarter current account figures will be issued, along with government financing/transactions figures.

Other more current data releases this week will include today’s CoreLogic figures on house prices which are expected to show a small -0.2% decline in home prices for May (Monday), building approvals for April tomorrow which are forecast to show a fall of10%, retail sales (Thursday) to confirm a fall of close to 18% for April and the trade surplus (also Thursday) to have fallen back to around $8 billion from the record high of more than $10 billion in March.

Today also sees the release of the May surveys on business activity, including manufacturing – a small recovery is forecast. Car sales data for May will be out later in the week.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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