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Australia’s knife-edge balancing act to avoid second recession in a year

September 1, 2021

Australia’s knife-edge balancing act to avoid second recession in a year

Australia appears to be right on the cusp of a technical recession in the June quarter, with forecast GDP figures sitting dangerously close to zero.

Australia appears to be right on the cusp of a technical recession in the June quarter, with forecast GDP figures sitting dangerously close to zero.

Over the weekend, AMP Capital chief economist Shane Oliver warned investors Australia faces a high likelihood of falling into a technical recession – referring to two consecutive quarters of negative growth.

At the time, Dr Oliver was forecasting a June quarter GDP contraction of 0.1%, before shrinking a further 4% the following quarter.

“While it’s a close call, we now expect a return to technical recession in Australia,” Dr Oliver said, citing the “spread and extension” of lockdowns (which AMP Capital expects to have cost $25 billion since May) and softer readings in some GDP components.

Data released by the ABS on Tuesday however resulted in a revision of these figures, and Dr Oliver now expects June quarter GDP to grow 0.3% following a lower-than-expected detraction in exports and greater public spending.

Capital Economics’ economist Ben Udy similarly noted Tuesday’s better data will help keep Australia out of recession, but was less optimistic about the magnitude of the June quarter’s growth – he is forecasting only a 0.1% increase.

With close to 60% of the country currently in lockdowns, economists, still expect the current quarter will see a contraction in economic growth with a recovery not expected until vaccination targets are hit and restrictions are unwound.

Second recession could leave Australians financially confused

A second technical recession is likely to leave many Australians feeling economically stressed, according to the CEO financial services firm IOOF, Renato Mota.

Mr Mota expects countless Australians will scramble to get financial advice if the wobbles in the Australian economy worsen.

“In terms of the correlation between advice and economic stress, there is no doubt that we see an increase in demand for financial advice in times of economic stress and downturns,” he told Sydney Morning Herald. 

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