Treasurer Josh Frydenberg warns of ‘difficult days ahead’ as March quarter GDP shrinks on impact of conjoined catastrophes

AUSTRALIA has entered its first recession for 29 years after the economy went backwards by 0.3% in the March quarter, with the impact of bushfires and the coronavirus ending the nation’s extraordinary, uninterrupted run of economic growth.

The treasurer, Josh Frydenberg, told reporters a recession was inevitable after the Australian Bureau of Statistics released national accounts showing gross domestic product fell 0.3% in the quarter. The economy grew only 1.4% over the past 12 months, which is the weakest performance since the global financial crisis.

While Frydenberg said the contraction in Australia was less severe than many other countries battling the economic shock associated with the coronavirus pandemic, he warned people to brace for “difficult days ahead” because the June quarter results would be worse than the impact felt in March.

Despite being the first treasurer in nearly three decades to preside over a recession, Frydenberg insisted Australia had avoided “an economist’s version of Armageddon” during the pandemic because the lockdowns had successfully flattened the curve of Covid-19 infections, and the public health restrictions had been accompanied by significant income support.

Frydenberg said the government would provide its own comprehensive economic update in late July when it unveiled the results of the review of the wage subsidy jobkeeper – delaying its planned mini-budget by a month. The treasurer also hinted the government might either reduce the wage subsidy from a flat payment of $1,500, or provide differential rates depending on a worker’s income.

The latest national accounts document the economic impact of conjoined catastrophes – the summer bushfires, and the onset of the coronavirus pandemic. The ABS data shows household consumption fell 1.1% – the first fall since December 2008 – and the largest quarterly decline in 34 years. While consumers increased their spending on goods – hoarding supplies in anticipation of a lockdown of all non-essential services – spending on services fell 2.4% with the introduction of social distancing restrictions and travel bans in February and March. Spending on transport services, hotels, cafes and restaurants fell off a cliff during the March quarter.