US pain triggers market decline

THE Australian share market has suffered its heaviest sell-off in five weeks, following Wall Street lower after the US reported its deepest quarterly economic contraction on record.

Major miners and the big banks were among those in the crosshairs on Friday as the ASX 200 fell 2 per cent, with more than $30 billion cut from the value of the companies in the benchmark index.

The slide was the steepest for any session since late June and came amid a growing list of downbeat developments around the world as the coronavirus pandemic continued to exact a heavy economic toll.

Overnight Thursday, the US revealed gross domestic product shrunk 9.5 per cent in the three months to June – an annualised rate of 32.9 per cent.

It is the deepest contraction in the US economy for any quarter since records started in 1947.

Germany revealed its economy had shrunk 10.1 per cent during the quarter in the most dramatic contraction there in records dating from 1970. France and Spain followed, declaring GDP fell 13.8 per cent and 18.5 per cent respectively – both the deepest falls on record.

The dramatic declines came after governments around the world rapidly rolled out broad social restrictions earlier this year to help contain the spread of the virus.

Australia’s GDP reading for the June quarter is not due until early September. While it is broadly expected to be better than those of most other developed nations, analysts believe it will still reveal the economy shrank substantially.

National Australia Bank chief economist Alan Oster said the “contraction we are seeing in the USA and Europe is a direct result of the actions countries have taken to contain COVID-19, which has partially closed down their economies during the quarter”.

“Australia will also see a big hit but not as bad – we are expecting around half the hit as experienced by the US,” he said.

“While these numbers are still the worst we have seen since the Great Depression, we do expect global economic growth to recover in 2021.”

AMP Capital chief economist Shane Oliver said America’s deep economic contraction was broadly expected and had been “factored in” by Reserve Bank officials in Australia.

On Friday, shares in all four big banks and mining heavyweights BHP and Rio Tinto fell more than 2 per cent.

Despite the slide, the index eked out a 0.5 per cent gain for July – its fourth consecutive month of gains since March.