We’re not in recession now? Here’s what today’s GDP figures mean

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Today’s GDP figures show the economy grew by 0.7 per cent in the June quarter.

How could that be?

Here are four quick points to explain what’s going on.

One: They’re backwards-looking

Today’s Bureau of Statistics figures show what happened to economic activity in the June quarter.

That means they’re backwards-looking.

They’re telling us what happened in April, May and June.

A huge amount of economic destruction has occurred since then.

Two: The economy was performing well before Sydney’s delta outbreak

The data show economic activity was positive in the second quarter.

Which makes sense if you think about it.

Remember what it was like a few months ago? The headlines were warning about skills shortages and record job vacancies as the unemployment rate fell below 5 per cent.

Today’s data reflect that situation.

In effect, today’s figures show the positive path the economy was travelling before the New South Wales government lost control of the delta variant in June and everything went sideways.

Since then, the economy has been deteriorating.

See the graph below.

It shows how GDP rebounded significantly late last year after the historic collapse in economic activity during the first lockdowns, and how economic activity has been positive in every quarter since then (albeit at a declining pace, as the economy’s recovered to its pre-COVID trend).

In the June quarter this year, the economy grew by 0.7 per cent, which was stronger than economists expected.

“We should remind ourselves that the Australian economy was booming for a lot of the second quarter and some of the monthly data was exceptionally strong,” said Commonwealth Bank economist Gareth Aird.

“The labour market in particular looked remarkably good. It is easy to forget that the expiry of JobKeeper at the end of March had no discernible impact on the economy or the labour market.

“In fact, employment rose by 138,000 in the second quarter and the unemployment rate dropped to 4.9 per cent in June,” he said.

Three: A large proportion of Australia’s population is now locked down

Which takes us to the nexfourth point.

The graph below shows the extent of the crisis we’re in now.

It shows how, during the second quarter, only 7 per cent of the population was locked down on any given day.

Compare that to the current quarter.

Since the start of July, an average of 45 per cent of the population has been locked down on any given day.

That explains why the third-quarter GDP figures (which won’t be released until December 1) will show a huge contraction in economic activity.

It’s also why policymakers and economists say our ability to quickly vaccinate people will help to limit the economic destruction we’re now experiencing.

Deloitte Access Economics senior economist Harry Murphy Cruise says there’s a “very real chance” official records will show that Australia enters recession this year.

“But whether we do or don’t is a moot point – recessions are just definitional, while lockdowns, and the pain they inflict on many people, are reality,” he said.

“And so we should think about how we support those Australians doing it tough.

“Lockdowns hurt jobs, and now that the Coronavirus Supplement has been removed, those that do lose employment are moving onto unemployment benefits that are just half of what they were last year during similar lockdowns,” he said.

Four: We’re not in recession now?

Which brings us to the final point.

Given the economy grew by 0.7 per cent in the June quarter, it means we might actually avoid meeting the (often useless) definition of a “technical recession”.

Why? Because according to that definition, a country is in recession if economic activity shrinks for two quarters in a row.

We all know the economy is shrinking at the moment, in the third quarter (July, August and September).

So if the economy shrank by even 0.1 per cent last quarter, the headlines would be screaming about the country being in recession now.

But since the economy grew last quarter, it means a lot of political attention will now be placed on the fourth-quarter figures, to see if the economy meets the definition of a recession then.

But really — do you think people in New South Wales, Victoria, and the ACT care about that?

They’re suffering as we speak.

It’s a recession for many of them now.

As CBA’s Gareth Aird wrote earlier this week, “for all intents and purposes the Australian economy is currently in a manufactured recession as we go through another huge negative shock.”

The crucial thing for economies on the east coast is how quickly they can get their populations vaccinated in coming months.

That will determine how quickly everyone’s lives can return to some kind of normality.

However, the economic recovery later this year may not have the same strength as last year’s, because households aren’t getting the same amount of government support this time around.

Dr Sarah Hunter, chief Australia economist for BIS Oxford Economics, said many people will behave more cautiously on the other side of these lockdowns, as we adapt to “living with COVID”.

“Assuming the vaccination rollout continues at its current pace it is likely that the Eastern states will begin to re-open in the December quarter, and this will enable the economy to recover,” she said.

“But the shift to a new COVID-normal, where there are persistent cases within the community, will make some people cautious.

“The recovery this time around will be drawn out into 2022,” she said.

By business reporter Gareth Hutchens (Original ABC Article)