In a global context, these outcomes, though extremely severe, are at the modest end of the scale. Australia's nationwide shutdown from late March to mid-May was less stringent and shorter in duration than experienced in many other regions, as government authorities were able to limit the initial outbreak of the virus to relatively low levels of infection. The effects of the shutdown were most pronounced in April as general mobility and economic activity across the nation was restricted. As a result, the labour market sustained its most severe shock in many decades with around 870k job losses occurring through April and May and hours worked falling by more than 10% over the period.
As it stands | National Accounts — GDP
The emergence of the pandemic on Australian shores led to the first quarterly decline in national GDP in 9 years as the domestic economy contracted by 0.3% in the March quarter, slowing the annual pace to a post-GFC low of 1.4% from 2.2%, falling further below the nation's trend pace of growth of around 2.75%. Reflecting differences in the timing and severity of the initial outbreak of the virus, growth across OECD economies contracted at a faster pace falling by 1.8% in the March quarter, with notably sharper declines coming through in the euro area (-3.6%) and the UK (-2.2%), while the US economy contracted by 1.3%. China recorded a 10% decline in output in the March quarter after several major cities were shutdown in late January.
Key dynamics in Q2 | National Accounts — GDP
Household consumption — In April, household spending fell sharply amid the national shutdown as consumer sentiment plunged to historic lows. Despite the period of severe dislocation in the labour market, the reopening in mid-May saw retail spending rebound strongly and this continued into July supported by measures introduced by the Federal Government to support household incomes, including through the JobKeeper policy, enhanced assistance payments and early access to superannuation accounts, while lenders have also allowed borrowers to temporarily defer repayments on mortgages. Ongoing restrictions, such as those imposed on travel, and cautionary behaviour has resulted in the pattern of household spending shifting markedly away from services to more goods-related consumption, with an increasing share of purchases being made through online channels.
Dwelling investment — The downturn in the residential construction cycle intensified in the June quarter as private sector activity contracted by a further 5.6% to be down by 12.1% through the year. New home building fell by 5.6% in Q2 to slide to its lowest level in 5½ years, while alteration work rolled over (-5.7%) after increasing over recent quarters.
Business investment — The tightening of pandemic containment measures, weakening economic conditions and elevated uncertainty over the outlook accelerated weakness in private sector capital expenditure as it contracted by 5.9% in Q2 — its 6th consecutive quarterly decline. Forward-looking investment plans were also downgraded.
Public demand — Government spending ramped up by 2.9%in Q2, with a key focus in health-related areas as the pandemic intensified.
Inventories — Weak demand conditions through the shutdown combined with the disruption to operating conditions led to the sharpest quarterly contraction in inventories on record of -3.0%q/q.
Net exports — The impact of travel restrictions had a significant impact on services exports halting the arrival of inbound tourists and students. With overseas travel by Australians prohibited, spending on import services collapsed by 50.5%. Weak domestic demand conditions has also weighed notably on imports of capital goods.