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Australia GDP Q2 2020

Australia: Covid-19 pandemic hits the economy hard in Q2

GDP fell 7.0% in seasonally-adjusted quarter-on-quarter terms in Q2, following Q1’s much softer 0.3% decrease, as Covid-19 and associated lockdown measures wreaked havoc on the economy. The result marked the sharpest contraction on record and came in below market expectations of a more moderate 5.9% contraction. Meanwhile, on an annual basis, the economy slumped 6.3% in Q2, contrasting Q1’s 1.6% expansion.

Nosediving household spending and shrinking fixed investment amid job losses and business shutdowns were behind the dire reading. Private consumption collapsed (Q2: -12.1% s.a. qoq; Q1: -1.2% s.a. qoq) following a sharp fall in spending on the services most affected by restrictions and as households increased their savings, facing an uncertain economic outlook. In addition, fixed investment contracted at a much sharper pace (Q2: -4.9% s.a. qoq ; Q1: -0.5% s.a. qoq) due to souring business sentiment and suppressed activity. However, government spending gained pace (Q2: +2.9% s.a. qoq; Q1: +2.1% s.a qoq) on the back of a large fiscal stimulus plan.

The external sector, meanwhile, supported the economy, as imports fell at a sharper pace than exports. Exports fell 6.7% in Q2 (Q1: -4.4% s.a. qoq), weighed down by shrinking services exports, while imports plunged a steeper 12.9% in Q2, after dropping 6.7% in Q1, mainly due to sinking purchases of services from abroad.

GDP is forecast to contract notably this year. The pandemic and associated containment measures will deal a severe blow to domestic and foreign demand, with household spending, business investment and exports all affected. While a prolonged second wave of infections poses a downside risk, fiscal and monetary stimulus should cushion the fall somewhat.

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