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Australia's Recession- June 2020

The Australian economy is expected to record its first recession in 29 years. The definition of a recession is consecutive quarters of negative economic growth. The Australian economy shrunk by 0.3% in the March quarter due to effects of the bushfires and early stages of the lockdown. Economists in the Treasury and the RBA expect the June quarter to be the economy’s worst three-month period since the 1930s. The last recession was in 1990-91.


The contraction in economic growth in March was largely due to a collapse in consumer spending on services and declines in government capital expenditure and household construction. These are all crucial components of Aggregate Demand (AD = C + I + G + X – M). The household savings ratio has also increased to 5.5% (compared to 2.2% in 2019) reflecting a lift in gross disposable income as consumption falls.


Despite the contraction, Australia’s economic performance compares very well relative to other economies around the world, with negative growth of 9.8% in China, 5.3% in France, 2.2% in Germany, 2% in the UK and 1.3% in the United States.


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