The Australian Bureau of Statistics (ABS) says the Australian economy moved to the edge of recession after the March quarter GDP fell by 0.3%.
Economists had tipped a drop of 0.4% and the 0.3% dip saw annual growth fall to 1.4% from 2.2% in the December quarter.
Annual growth in the year to March was the slowest through-the-year growth since September 2009 when Australia was in the GFC.
But there’s worse to come with some forecasts pointing to a fall of 8% or more in the June quarter.
The March quarter GDP had no impact on the markets – the ASX 200 jumped more than 106 points or 1.8% while the Aussie dollar broke through 69 US cents in local trading.
The March national accounts were only impacted by the beginning of the expected economic effects of COVID-19 pandemic and lockdowns in late March. But they do include the impact of the bushfires in January.
The current quarter will feel the full brunt of that – as we saw with car sales which fell 35% in May to 59,894, the biggest fall for May recorded since the figures were started back in 1991- 92,561 vehicles were sold in May 2019. That follows a 48% slump in April.
Building approvals fell 1.8% in seasonally adjusted terms, according to the ABS. That was far better than the 10% slide forecast by the market.
The difference was put down to backlogs of local government approvals in the March quarter finally getting through the system in April.
The ABS said public demand contributed 0.3 percent percentage points to GDP, driven by a 1.8% rise in public spending thanks to government support packages for the bushfires and the early stages of the reaction to the COVID-19 pandemic. That spending by state and Federal administrations will be a bigger factor in this quarter in helping offset another slump in demand from households.
Australia did better than a number of other countries in the March quarter, with negative growth of 9.8% in China, 5.3% in France, 2.2% in Germany, 2% in the United Kingdom, and 1.3% in the United States.
It was the first reported negative growth quarter since September 2016 – that fall of 0.5% was revised away to growth of 0.1%. It is possible the 0.3% fall could be increased as imprecise first statistical reports become clearer over time.
The March quarter of 2011 saw a fall of 1.2% which was later revised back to a fall of 0.3%.
Besides the 0.3 points contribution to GDP from government spending, strong exports (especially iron ore) added 0.5 points thanks to the 4th current account surplus in a row (of $8.4 billion).
But household spending dropped by 1.1 over the quarter, which included the 0.7% rise in retail sales (in volume terms) in the quarter.
“Private demand detracted 0.8 percentage points from GDP, driven primarily by a 1.1 percent fall in household final consumption expenditure,” the ABS said in commentary.
“Spending on services fell significantly, particularly where restrictions impacted most severely, such as air transport services, hotels, cafes and restaurants, recreation and culture.
“Spending on goods rose, most notably in food and pharmaceuticals, as households prepared for the introduction of restrictions,” the Bureau said. That was the panic buying in February and March in supermarkets and other food stores.
GDP per capita fell by 0.7% during the quarter but the terms of trade rose 2.9% after the sharp 5.3% slide in the three months to December.
The household saving ratio rose to 5.5% from 3.5% in the previous quarter, reflecting a rise in gross disposable income and falls in consumption.