Australia’s GDP may have contracted marginally from May to June, reports Citigroup Inc. and Australian Mutual Provident Society. This gives a dire visualization of a technical recession when the result is added to the economic slump (cause by the Covid-19), that is forecasted for the present quarter.
Australia’s Gross Domestic Product (GDP) Is Predicted to Fall Further
Generally, it can be said that the economy fared well in the second quarter. It is, however, predicted by Josh Williamson of Citigroup and Shane Oliver of AMP that a fall in net exports will contribute to the GDP falling short of expectations. The range of the Gross Domestic Product forecasts in the report by Bloomberg is broad. It ranges from -0.1% to more than +1%.
According to Williamson, Citigroup’s Australia chief economist, net exports would likely outweigh all positive domestic economic drivers such as household spending, government demand, corporate investment, etc., and he said that such a result would have bad optics.
In a bid to battle the delta pandemic, officials have remanded Melbourne and Canberra under lockdown orders, and Sydney has also entered its tenth week under the same lockdown order. A second-quarter drop would be unexpected, since the most likely path to a recession was supposed to be shutdowns that lasted until the fourth quarter, resulting in a negative second half of 2021.
The COVID Pandemic Contributes to Falling Australia’s GDP
From January to June, there were successive quarterly GDP declines in Australia influenced by the Covid pandemic. This brings an end to a nearly three-decade period without a technical recession.
According to Oliver of AMP, consumer expenditures, plant, and equipment investment, and government spending are all likely to have contributed to the growth of the GDP in the June quarter. However, this appears to be countered by a reduction/stagnation in house investment and non-residential development, as well as considerable drags on growth from inventories and net exports, he added.
In speaking about the lockdowns, Oliver says the idea of the economic downturn is less significant than usual because it is not the typical cyclical recession and the economy should recover soonest. However, he admitted that the optics would be pathetic, and news of another economic downturn would be depressing.
Economists are expected to also give high consideration to the inventories before the release of Wednesday’s reports. The Net Export reports will also be coming in on Tuesday.
The Australian Dollar is set to be hit massively by the impending decline in Australia’s economy.
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