It’s official. Australia is officially in a recession for the first time in 29 years after COVID-19 restrictions shut international borders, saw workers sacked and clamp down on household spending.New data from the Australian Bureau of Statistics (ABS) released today confirmed the fears, noting a series of eye-watering statistics.In just three months, the nation’s gross domestic product fell by 7 per cent. That’s the biggest quarterly drop since the ABS began keeping track in 1959.
The likelihood is that it is the biggest drop since WWII.All pretty grim numbers – but what does it mean for the ordinary Aussie? Will it affect mums and dads putting their kids through school? Retirees living off the aged pension? School leavers looking to enter the workforce?Here’s what we know about living through a recession:
First things first. What actually is a recession?
A recession is generally when a country’s economy declines.Technically, economists couldn’t label it a recession if the Australian stock market has one bad day – you generally need two successive quarters where Australia’s gross domestic product (GDP) has fallen.
Has Australia ever had a recession before?
Yes. You may famously remember Paul Keating saying in 1990 that Australia endured “the recession we had to have”.Mr Keating was arguing that a decline in Australia’s economy was putting a halt to soaring inflation in the 1980s.Inflation is where the price of ordinary goods – such as bread, milk, eggs – grows over time.
Mr Keating was arguing that the recession Australia endured in the early 1990s put a halt to costs of living that were beginning to outstrip ordinary wages.Technically that recession ended in 1991 – which means when the current recession becomes “official” in September it will be the first time in 29 years.
Okay, so a recession is a declining economy. I’m not some cashed-up investor. Surely what happens on the stock market won’t affect me?
It won’t today or tomorrow, but a recession has trickle-down effects that impact every single person in the country.
In severe times, it’s the ordinary people – those delivering Uber Eats on bicycles, working two or three jobs to make ends meet or working in the service industry – that tend to suffer.Let’s break it down: if the economy stops growing, big businesses are forced to cut costs.New products are not created and because “ordinary” people feel the fear of a recession, they cut back on spending.If an average family house stops spending, small business is affected.Coffee shops may have to lay off additional staff because people choose to make coffee at home. Gyms may have to cut down on staff as people quit their memberships due to tightening budgets.
Property owners may not put their homes up for sale fearing a smaller market of buyers and as a result, house prices could ease off.First time home buyers could be less likely to commit to a big-ticket purchase in case they need to lean on their savings during unemployment.These are just some examples. It’s impossible to accurately predict how ordinary consumers react during a recession.
Are we looking down the barrel at hard times?
It’s hard to say – but early indications from people who have spent a lifetime studying the economy is that Australia is “remarkably resilient”.
What now?
There is plenty we can do in our communities to support each other and local business.In short, having regular Australians freely spending money in the community is a way to grow the economy or at least slow down the decline.Of course, with rising costs of living and stagnant wages, not everyone simply has money to pour into local cafes and retailers.
To combat this, it’s likely that we’ll see more government economic stimulus packages – such as building grants or retail incentives – to get people to spend money.We’ve also got some experience at this. In 2009 the Labor Government under then-prime minister Kevin Rudd distributed payments of up to $950 to 13 million Australians in an effort to avoid a recession.The move was slammed as wasteful as people lined up to buy flat screen TVs, but it worked.It’s hard to say in the wake of COVID-19 if something similar would work again.
Source: 9NEWS
