It’s been a tough year for economies worldwide as the coronavirus pandemic continues to wreak havoc causing businesses to shut down, mass unemployment, spending to drop and our economic financials to deteriorate.
Here is everything you need to know about the coronavirus recession, what it will look like and how long it’ll last.
What is a recession?
A recession generally characterised as a decline in economic activity, which then results in businesses and individuals spending less money.
A recession in Australia is defined by a contraction in economic growth over two consecutive quarters. Some economists also consider a recession to be when stagnant economic growth lasts over 12 months, or there is a 1 per cent increase in the unemployment rate increase.
Is Australia in recession?
In short, yes.
In early September, Australian Bureau Statistics figures showed that our gross domestic product (GDP) actually shrank by 7 per cent over the June quarter. This represents the biggest drop in GDP since records began back in 1959 and is also the second consecutive quarterly contraction.
This is the worst economic growth in 61 years, and follows a 0.3 per cent decline in GDP across the March quarter.
When did the coronavirus recession start?
Treasurer Josh Frydenberg flagged an impending recession back in June this year after the economy went backwards by 0.3 per cent in the March quarter thanks to the impact of last year’s bushfire season combined with the coronavirus pandemic.
At the time, the 0.3 per cent loss in GDP, given the economy grew only 1.4 per cent over the previous 12 months, was Australia’s weakest economic performance since the global financial crisis.
Frydenberg said the contraction in Australia was less severe than many other countries but that the economic shock associated with the coronavirus pandemic would cause “difficult days ahead”.
Sure enough, as expected, the figures deteriorated further over the June quarter – resulting in a 7 per cent drop in GDP – and an official ‘recession’ was declared in early September.
“Today’s devastating numbers confirm what every Australian knows: that Covid-19 has wreaked havoc on our economy and our lives like nothing we have ever experienced before,” Frydenberg said at the time.
Why the coronavirus recession is like any other
We know that Australia’s economic figures are stunningly bad, as is the case in the majority of economies worldwide.
The dire GDP results, combined with poor growth forecasts and unstable unemployment figures are only comparable to the previous worst quarterly performance back in June 1974 when the nation was hit by the first global oil shock.
But while many experts compare the coronavirus to the global finance crisis, or worse, this recession is unlike any other in Australian history because the steep economic decline has been caused by a health crisis and as such, recovery is unpredictable.
Will the coronavirus recession be worse than 2008?
The World Trade Organisation (WTO) director-general Robert Azevedo said in March this year that projections show the economic downturn and job losses caused by the coronavirus pandemic will be worse than the 2008 recession.
“This pandemic will inevitably have an enormous impact on the economy,” Azevedo said.
“Recent projections predict an economic downturn and job losses that are worse than the global financial crisis a dozen years ago.”
For Australia, the coronavirus recession will certainly be worse than in 2008 given our economy all but escaped any extreme effects felt by the 2008 global financial crisis with most impact felt overseas.
What will the coronavirus recession look like?
Businesses will continue to fold as they are unable to withstand the financial ruin facing them as a result of the coronavirus pandemic.
And we’ll continue to see jobs lost.
Paying rent, phone, internet, utility bills and even a mortgage will become more of a struggle and so bills will go unpaid.
With less income, household spending will drop further.
And then the vicious cycle continues: consumers who are less willing to spend means more and more businesses will struggle, and it goes on.
And of course, the property market suddenly finds fewer buyers, meaning house values drop.
Global stock markets have also been volatile for the last few weeks, and investors saw several days where hundreds of billions of dollars were wiped off every time – and we don’t seem to have reached the bottom yet.
While Australia’s economy wasn’t in the strongest standing to begin with, the reason behind most business closures are circumstantial and specific to the virus.
The Morrison government has so far announced two stimulus packages totalling $83.6 billion, to cushion the economic blow on individuals and businesses impacted by the stringent restrictions implemented to curb further spread of the virus and aid our economic recovery.
The government will spend a combined $22.9 billion on income safety nets of $550 per fortnight for those who have lost their jobs, sole traders and casuals and a $750 one-off supplement for those on certain welfare, pension and concession payments.
Australia’s banks have also thrown a $100 billion lifeline, which will pause mortgage repayments until next year for Aussies who have fallen into financial hardship as a result of Covid-19.
Australia’s economic recovery is now largely in the government’s hands, and it will be “critically important” that the government minimises the economic fallout, economist Stephen Koukoulas said.
“It does this by pumping money into the economy, making it easy to get social security payments so people can survive. It is why policies are needed to see the economy as strong as possible to reduce the human costs of high unemployment.”
It’s just a matter of waiting for the virus to come and go.
How long will the coronavirus recession last?
According to many leading economists, the September quarter could show a growth of Australia’s economy, even despite the second-wave lockdown in Victoria.
Economist Peter Swtizer is just one of many who expects the September quarter figures to show a recovery.
“The June quarter is made up of April, May, June. The first two months were terrible but JobKeeper came in and improved the positivity and that’s why some people think the number might be five per cent down rather than seven per cent,” Switzer told Sky News.
“And then we roll into the September quarter which some economists say could be positive until the Victorian lockdown and then of course that is causing problems for growth going forward.”
“I think that September will still be a better number than the June quarter,” he said.
However, until we know how the public-health challenge posed by the coronavirus pandemic will play out and how quickly and thoroughly it is resolved, it is almost impossible for economists to accurately predict how and when the crisis will end.
Frydenberg has warned the road out of recession for Australia will be “hard and bumpy” after the economy contracted by a record 7.0 per cent over the June quarter.
“The numbers are extremely sobering,” Frydenberg told reporters in Canberra in early September when the June numbers and recession were announced.