The central bank stepped in by cutting the cash rate to a record low 0.25% and launching an unlimited bond buying programme
SYDNEY: Australia’s economy shrank last quarter, setting the scene for what will be the country’s first technical recession in three decades as entire business sectors were shut down to fight the coronavirus.
Wednesday’s data from the Australian Bureau of Statistics (ABS) showed the A$2 trillion ($1.39 trillion) economy contracted 0.3% in the quarter ended March, the first decline in nine years.
That took the annual growth to 1.4%, the slowest since the 2009 global financial crisis, as the economy was hit by the worst bushfire season in living memory, a prolonged drought and a pandemic that shut down businesses and left many without jobs.
Following the data release, the Australian dollar eased from a five-month high of $0.6982 and the benchmark share index slipped to 5,835.1 points from 5,902.2.
Australia’s gross domestic product is expected to fall even more sharply in the current quarter. Two consecutive quarters of contraction would mean Australia would suffer its first technical recession since the early 1990s, ending one of the world’s longest growth streaks.
Household consumption was the biggest drag on growth last quarter with massive falls in spending on clothing, cars, transport, recreation, hotels, cafe and restaurant.
Net exports and government spending supported the economy in the quarter.
The economic fallout deepened in Australia as the number of local coronavirus cases surged from less than 100 in early March to more than 7,000 now, forcing the government to shut borders and restrict large gatherings.
The central bank stepped in by cutting the cash rate to a record low 0.25% and launching an unlimited bond buying programme. The government, meanwhile, unleashed a large fiscal stimulus plan, including a A$60 billion wage subsidy scheme.
The Reserve Bank of Australia (RBA) has recently sounded less gloomy about the economy even though the country is in the midst of its worst downturn since the Great Depression as better health outcomes have led to an earlier-than-expected re-opening of businesses.
“Although the immediate outlook is better than anticipated a couple of months ago, the economy still faces challenges,” said Sarah Hunter, Chief Economist for BIS Oxford Economics.
“The size and speed of the decline are unprecedented,” Hunter added.
“The outlook for investment is also highly uncertain, with the construction sector pipeline and capital goods imports data suggesting that spending will slow markedly in the second half of the year.”