Another recession not on cards, just yet

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Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

 

A growing number of economists are predicting that with half the population in lockdown, the economy will contract in the September quarter.

But at this stage they doubt this will be followed by a second negative quarter in the final three months of year, which would signal the economy has sunk back into a recession.

The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, eased further in June, but still points to annual growth above trend about 2.8 per cent.

Westpac chief economist Bill Evans is forecasting the economy will contract by 0.7 per cent in the September quarter.

“We expect the economy to bounce back once measures bring outbreaks under control, with the December quarter expected to show a 2.5 per cent rebound nationally,” he said.

Greater Sydney and some NSW regional areas are in lockdown until July 30, and Victoria is in an extended shutdown until next Tuesday, as is South Australia.

Greater Sydney and Melbourne alone account for about half of the economy’s output.

As such, independent economist Nicki Hutley says another recession can’t be ruled out.

“This Delta virus just seems almost unstoppable. You have seen how difficult it has been for NSW to get on top of it,” she told ABC radio.

“If we can’t do that very quickly, this could drag on. That is the worst case scenario.”

The Australian Bureau of Statistics will issue its preliminary retail trade figures for June on Wednesday.

Economists’ forecasts centre on a 0.4 per cent decline, wiping out the 0.4 per cent gain seen in May, although some believe it could be as much as a one per cent drop.

The data will cover the full impact from last month’s Victorian COVID-19 lockdown.

Sales for July are likely to be even weaker, clobbered by earlier snap lockdowns in Brisbane, Darwin and Perth, as well as the now lengthy restrictions in Greater Sydney.

Those latter restrictions include the closure of construction sites, the first time such a measure has been included.

“If the pause goes beyond July 30, it could bring smaller contractors to their knees due to cashflow issues,” Australian Constructors Association chief executive Jon Davies warned.

The National Skills Commission will also issue its final report for skilled vacancies for June.

Its preliminary figures showed job advertisements posted on the internet fell 0.5 per cent in the month, the first decline since the pandemic low point in April 2020.

However, jobs ads were still 43.8 per cent higher than their pre-pandemic levels.

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