Will Australia Go Into Another Recession?

With more than half of the country now in lockdown, the threat of another recession looms over Australia. 

Prior to COVID-19, Australia had developed a reputation for avoiding recessions, which is defined as two consecutive quarters of economic decline. 

Australia hadn’t experienced a recession for 30 years until the pandemic arrived, which directly followed the bushfires that swept the nation and caused the country’s economy to contract. 

Now, experts are deliberating whether another recession looms around the corner, as the highly contagious Delta variant spreads across the nation. 

Experts predict a negative September quarter 

Some estimates suggest that as many as 300,000 jobs could be lost amid the Greater Sydney lockdowns, which look likely to be extended as case numbers continue to hit all-time highs. 

Meanwhile, Victoria and South East Queensland have entered lockdown as well following an outbreak of cases in both regions. 

Most experts agree that this reduction in economic activity will cause a contraction in Australia’s economy over the September quarter, with the Federal Treasurer Josh Frydenberg stating that it “won’t be surprising if the September quarter is negative.”

Frydenberg’s sentiments are echoed by the head of Australian economics at CBA, Gareth Aird, who stated that:

“By definition, if you’re telling households and businesses to stay at home and stop doing things then you’ll get less production.”

Aird has predicted a contraction of 0.7% in Australia’s GDP over the September quarter, which is a more conservative estimate than Westpac’s prediction of a 2.2% contraction in Australia’s GDP over the same period. 

In Westpac’s release, the bank states:

“Our forecasts are now based on the assumption that the full lockdown lasts until the end of September and that the construction sector operates at only 60% capacity from August 1 until the end of the lockdown.”

With Sydney comprising nearly a third of Australia’s GDP and the ongoing lockdowns preventing billions of dollars’ worth of construction jobs from taking place, it’s no surprise that economic predictions aren’t too optimistic while Greater Sydney’s positive case numbers continue to rise. 

Will Australia go into another recession? 

All signs point to Australia going through at least one quarter of economic contraction, though in order to be classified as a technical recession, two consecutive quarters of economic decline must occur. 

The likelihood of two consecutive negative quarters largely rests upon whether or not Sydney’s lockdowns are continued, and which states or capital cities end up accompanying it. 

A recent survey of experts and economists by Finder found that half of respondents believe that household debts will increase due to the recent lockdowns across the country, and nearly two thirds of respondents (63%) believe that the lockdowns will plunge Australia into a recession. 

Learn to safeguard your business and personal assets by minimizing your financial risk in this uncertain economy

Treasurer Josh Frydenberg, on the other hand, has remained open-minded about the economic future of Australia, though he argues that the likelihood of a recession will largely be determined by the situation in NSW. 

“How we go in the December quarter, which would need to be negative again if we were to go into another recession, will largely depend on how successful NSW is in getting on top of this virus.”

Frydenberg’s sentiments are shared by RBA Governor Philip Lowe, who maintains a sense of cautious optimism that Australia will avoid a recession: 

“Once restrictions are lifted, spending will bounce back strongly. Timing is difficult to predict, but it’s likely to happen well before the end of the year.”

“By the end of the year, many of us will be vaccinated and hopefully restrictions will be eased into next quarter. As that happens, the economy should begin its recovery.” 

However, the RBA Governor also said that another recession isn’t off the table for Australia, stating that “We can’t rule out two quarters of negative GDP if the health situation deteriorates,” though he believes that would be “quite unlikely at this stage.” 

The end of lockdowns rests upon vaccination rates 

The NSW Premier Gladys Berejiklian has stated that lockdowns will be eased in Sydney in accordance with the vaccination rates of NSW, stating that “By the end of August, I’d like to see NSW record 6 million jabs … that gives us additional options as to what life looks like on August 29.”

6 million jabs would mean that roughly half of New South Wales’ adult population would be inoculated against the virus, and may lead to the easing of some restrictions in the state such as workplaces and schools opening back up. 

In order to achieve this goal, NSW has to ramp up the number of daily jabs given, from the current trajectory of 66,000 per day to 71,428 per day to hit 6 million jabs by the end of August.

Source: ABC News

While vaccination rates are ramping up each week, experts say this target will be difficult to achieve. 

“We do know that on occasions we’ve managed [69,000 doses per day] in the last couple of weeks but it will be very difficult,” said Christine Jenkins, a professor of respiratory medicine at UNSW.

Deliveries of the Pfizer vaccine are now being redirected to Sydney and parts of Queensland in light of their rising case numbers of the Delta strain. 

Protect your wealth 

Whether or not a recession occurs, there’s no telling what could happen tomorrow. A lockdown could shutter your business, you could lose your job, or you could get sued; all of which open you up to the possibility of losing your hard earned assets. 

That’s why, here at DG Institute, we teach people how to safeguard their assets to make sure they are protected against the unpredictability of life.

Learn how to protect your wealth today by attending one of our free seminars.