Australia now in recession: What does that mean for you and the economy? - NEWS.com.au

Today, Treasurer Josh Frydenberg confirmed Australia is now in a recession as result of the major economic impacts from the coronavirus pandemic.

When asked whether the country was in recession, Mr Frydenberg said:

“Well, the answer to that is yes. And that is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be.”

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The confirmation came after the Australian Bureau of Statistics reported the economy shrank by 0.3 per cent in the March quarter, off the back of the bushfires, drought and coronavirus pandemic.

The announcement has left many Australians wondering what the recession actually means for them.

Here are some of the areas that will most likely be impacted.

JOBS AND WAGES

The recession means that it will be significantly harder for unemployed people to get jobs, with it also being more difficult for employed people to change jobs. It also means that wage growth will slow down.

Dr Andrew Grant, senior lecturer at the University of Sydney Business School, previously told news.com.au that small businesses will also take a hit.

“Small businesses will have to strike a balance between remaining operational and closing – even if there are extensions to loans or deferred payments, there are other costs businesses are going to incur, so can small businesses justify keeping the lights on when they’re not getting as many customers through door? That’s going to be a challenge,” he said.

During the Global Financial Crisis (GFC) Australia’s unemployment didn’t drastically change, moving from just over 4 per cent to just under 6 per cent.

This happened because many employers chose to reduce employees’ hours instead of cutting jobs completely.

However, the country went into that crisis in a better position with a lower unemployment rate and a Reserve Bank with much more capacity to cut interest rates.

COST OF LIVING

The economic hit could see many businesses see their costs increase, which could then force them to pass these costs onto consumers.

On the other hand, it would be extremely difficult for businesses to raise prices and keep customers during a time when people will likely be trying to cut back on spending.

With the potential for rising costs and the possibility of more people being unemployed, Australians will likely start cutting out non-essential costs.

The first things to usually be abandoned are luxuries holidays and travel plans, buying new items and eating out.

Beauty appointments, gym memberships, streaming services and even health insurance are costs that could also be on the chopping block for many people.

Household spending already dropped by 1.1 per cent over the recent quarter, the first decline since December 2008.

This is likely due to the recent shutdown of businesses and implementation of social distancing rules, but it was partially offset by a rise in the amount of goods bought, such as food and medicine.

“This is the story of what was happening in the economy as we saw panic buying in our supermarkets, but we saw people increasingly staying at home,” Mr Frydenberg said.

HOUSING MARKET

It is possible that low interest rates could have a “slightly positive impact” on property prices but some people with investment properties may be forced to put them on the market to free up some cash.

“Suddenly paying 80 per cent of your pay on three mortgages might not seem like a good idea, so we could expect that to lead to bigger supply, especially of units,” Dr Grant said.

“But it depends on how long this lasts, because there are costs associated with selling property so it’s not the first thing people turn to.”

A recession will likely see a sharp fall in property prices, with NAB chief economist Alan Oster telling Domain he would “not be surprised to see residential property prices down 10 per cent over the next 12 months”.

St George Bank’s Ms Deda told the real estate company they were also expecting property prices to drop but would not provide a forecast because there were too many uncertain factors.

“The number of housing transactions will fall, consistent with the rise in uncertainty,” Ms Deda said.

“We would expect dwelling prices to decline over the next few months … and building approvals to decline further.

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2020-06-03 08:56:19Z
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