Economy slows, ‘very difficult days ahead’

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

 

The Australian economy’s expansion slowed in the June quarter compared to three months earlier and Treasurer Josh Frydenberg conceded there are “very difficult days ahead” with NSW and Victoria remaining lockdown.

The national accounts released on Wednesday showed the economy grew by 0.7 per cent in the June quarter compared with an upwardly revised 1.9 per cent expansion in the March quarter.

“What these numbers show is the economy remained remarkably resilient even in the face of repeated lockdowns,” Mr Frydenberg told reporters in Canberra.

“Today’s numbers should give Australians confidence that despite the difficulties that we face, our economy will bounce back once restrictions ease.”

But shadow treasurer Jim Chalmers saw it differently.

“These numbers confirm Australia’s economy was slowing even before the Sydney lockdown as a direct consequence of Scott Morrison’s failures on vaccines, quarantine, and the economic supports,” Dr Chalmers told AAP.

ABS head of national accounts Michael Smedes said domestic demand drove the expansion in the June quarter which saw continued growth across household spending, private investment and public sector expenditure.

However, exports detracted from the growth in the quarter as a result of weather disruptions.

The annual growth rate was a whopping 9.6 per cent reflecting the economy’s past glories of a strong recovery from last year’s recession and as the steep seven per cent contraction seen in the June quarter 2020 dropped out of the equation.

However, the September quarter is expected to show a sharp contraction with NSW and Victoria, along with the ACT, in extended lockdown.

Treasury is predicting a downturn of at least two per cent, while private economists believe it could be over four per cent.

Deloitte Access Economics partner Stephen Smith says even then the economy may not be out of the woods.

“There’s still a very real chance that Australia has already entered its second recession within 24 months given the significant lockdowns in the September quarter and the likely ongoing impact into the December quarter,” Mr Smith said.

Deloitte was one of 80 leading businesses, which employ almost one million workers, that have signed an open letter to state and federal leaders calling on them to stick to the national COVID-19 recovery plan.

The plan targets double-dose vaccination rates of 70 and 80 per cent among Australians aged 16 and above as stages to end lockdowns and open up both internal and international borders.

The double-dose vaccination rate is 35.7 per cent.

Mr Frydenberg agreed premiers must stick to the plan that was struck at national cabinet.

“It will definitely hurt the economy if borders remain in place, definitely,” he said.

In a sign of the data that is likely to emerge in coming weeks, the solid recovery in Australia’s manufacturing sector this year all but ground to a halt in August.

The Australian Industry Group’s performance of manufacturing index tumbled 9.2 points to 51.6 in August, holding only just above the 50-mark which separates expansion in the sector from contraction.

Ai Group chief executive Innes Willox said lockdowns across the country, particularly in NSW and Victoria, had a major impact on manufacturing, although ongoing strength outside of these states was strong enough to maintain the index in positive territory.

“Looking forward, there was positive news in the further growth in new orders in August and the easing of restrictions on construction will go some way to rebuilding confidence or at least hope among its suppliers,” Mr Willox said.

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