Australian economy contracts sharply in Q2 2020
The Australian economy contracted 7 percent quarter-on-quarter in the second quarter of 2020, the largest fall since quarterly records started in 1959. On a year-on-year basis, the economic growth shrank 6.3 percent. The quarterly decline was consistent with market expectations.
The report indicated that the private sector economy collapsed in the second quarter. In all, private sector demand dropped 10.5 percent quarter-on-quarter, the largest fall on record. With consumer spending accounting for about 55 percent of GDP, it was the key driver of weakness.
The public sector and external sectors added strongly to the growth, but not sufficient to counter weakness elsewhere. Industry wise, the softest sectors were hospitality, arts & recreation and transport services, which bore the brunt of the shutdowns and border closures.
Government stimulus helped to underpin incomes and spending. While much of the focus has been on the stimulus to households, the impact is quite clear on profits, with the profit share rising to its highest level on record.
The GDP data gave further confirmation that the COVID-19 pandemic is the largest shock to Australia’s economy since the Second World War. The focus is now on the third quarter GDP and the fourth quarter.
“The unemployment rate is currently 7.5 percent, with the Government acknowledging that the effective rate is 9.9 percent. Significant further stimulus over the next few years is likely be required to generate growth and jobs and drive the unemployment rate down”, said ANZ in a research report.