Today’s National Accounts confirm the devastating blow to the Australian economy from COVID-19. Our record run of 28 consecutive years of economic growth has officially come to an end. The cause; a once in a century global pandemic. The effect; a COVID-19 induced recession.
Real GDP fell in the June quarter by 7 per cent. The largest quarterly fall on record.
Since the series began in 1959, the previous largest fall was 2 per cent in 1974.
Behind these numbers are heartbreaking stories of hardship being felt by everyday Australians as they go about their daily lives.
Be it the tourism operator in Cairns, the tradie in Melbourne, the café worker in Adelaide or the domestic flight attendant in Sydney, they are all affected by COVID-19.
Today we are reporting these devastating numbers. Australians are living them.
We have done everything possible to cushion the blow and support Australians in need.
Our priority was and continues to be saving lives, and ensuring that Australia’s healthcare system has the capacity to test, trace and treat coronavirus cases.
We acted quickly and decisively to close our international borders and put in place restrictions that would suppress transmission, but allow large parts of the economy to continue operating where it was safe to do so.
We didn’t go down the path of countries like Sweden, which put few restrictions in place.
At the same time, we didn’t go down the path of countries like France, which adopted extreme lockdowns, totally shutting down large parts of their economy.
Instead, we chose our own path and put in place $314 billion of support for Australians to build a bridge to the other side of this crisis.
Our strong economic positon going into this crisis gave us the financial firepower to respond.
Without the Morrison Government’s economic support, 700 000 more jobs would have been lost and the unemployment rate would have been 5 percentage points higher.
This support has enabled Australia to avoid the fate of many other nations.
This crisis is like no other.
The World Bank is expecting more economies to experience contractions in per capita GDP than at any other time since 1870.
The OECD is forecasting a contraction of 6 per cent in global growth this calendar year, compared with an annual fall of just 0.1 per cent in 2009 during the GFC.
Globally, the equivalent of nearly 500 million full-time jobs are estimated to have been lost over the first half of this year.
Indeed, Australia’s economic performance sits amongst the top when compared with other developed nations as a result of our health and economic plan to fight the virus.
In the United Kingdom, GDP fell by 20.4 per cent in the June quarter. In France GDP fell by 13.8 per cent, Canada by 11.5 per cent, Germany by 9.7 per cent and the United States by 9.1 per cent while New Zealand is expecting the economy to contract by more than 20 per cent.
This is in contrast to today’s National Accounts which show GDP fell by 7 per cent in the June quarter and contracted by 0.2 per cent in 2019-20. These results are consistent with Treasury forecasts in the July Economic and Fiscal Update.
The June quarter result was driven by the largest fall in household consumption on record, with business and dwelling investment also falling. These falls were partly offset by a contribution from net exports and moderated by unprecedented government support.
Household consumption fell by 12.1 per cent in the quarter and by 2.6 per cent in 2019-20, the first annual fall in consumption in the history of the national accounts.
Household consumption fell in 10 out of 17 consumption categories, with the largest falls seen in consumption of services. Social distancing and travel bans saw large falls in spending on Transport Services and Hotels, Cafes and Restaurants.
New business investment fell by 3.5 per cent in the quarter, driven largely by falls in machinery and equipment investment.
Investment in new machinery and equipment fell by 6.8 per cent to be 13.4 per cent lower through the year.
Elevated uncertainty, business shutdowns and social distancing requirements following the onset of the pandemic resulted in businesses preserving liquidity by deferring, cancelling and limiting equipment purchases.
However, the ABS noted that the Instant Asset Write-off lessened the COVID-19 driven falls, as was the intent of the policy.
New building investment fell by 2.3 per cent, while engineering construction rose by 1.9 per cent. These outcomes compare favourably with those in other countries, where construction activity was more heavily restricted.
The falls in business investment were concentrated in the non-mining sector, where investment fell by 5.1 per cent in the quarter.
Mining investment rose by 1.3 per cent in the quarter, its third consecutive quarterly rise and recorded its first rise in financial-year terms in seven years.
Dwelling investment fell by 6.8 per cent to be 11.2 per cent lower over the year. Both houses and other dwellings contributed to the decline this quarter, with falls across all states and territories with the exception of Tasmania.
Today’s result reflects the slowing in commencements and some reduced productivity on construction sites from social distancing requirements.
New public final demand increased by 2.0 per cent in the June quarter, driven by front-line services and COVID-19 responses to support households.
This included increased expenditure on front-line employees as well as the use of goods and services such as personal protective equipment, cleaning and logistics.
Net exports contributed 1 percentage point to GDP growth in the quarter as imports of goods and services fell more than exports of goods and services.
The health-related restrictions significantly affected our tourism and international education industries, with services trade heavily impacted by travel bans on both inbound and outbound travel.
Travel-related trade has almost totally ceased, resulting in sharp falls in both exports and imports.
Australia recorded its largest current account surplus on record of $17.7 billion or 3.8 per cent of nominal GDP. This is the fifth consecutive surplus, the longest period of current account surpluses since the 1970s.
Exports continue to be supported by Free Trade Agreements which now cover around 70 per cent of our two‑way trading relationships compared to just 26 per cent when we came to Government.
Inventories detracted 0.6 percentage points from GDP growth in the quarter, driven by Retail Trade and Wholesale Trade.
Nominal GDP decreased by 7.6 per cent in the June quarter, taking annual growth for 2019‑20 to 1.7 per cent, which is in line with Treasury’s forecast of 2.0 per cent in the July Economic and Fiscal Outlook.
Turning to the income side, compensation of employees, which measures the national wage and salary bill, decreased by 2.5 per cent in the quarter to be 0.4 per cent higher through the year.
The decrease in COE was driven by a record loss in jobs over the quarter with the blow cushioned by JobKeeper payments.
Despite a fall in compensation of employees, household disposable income increased by 2.2 per cent in the quarter to be 6.4 per cent higher over the year.
The increase in household income was driven by the largest increase in social assistance benefits in history.
Social assistance benefits rose by 42 per cent in the quarter, contributing 4.4 percentage points to growth in household disposable income.
The household savings ratio increased to a record high of 19.8 per cent in the quarter. While policy supported household incomes, consumption fell sharply as a result of the restrictions and increased caution by households.
As expected, there is a clear industry story in these numbers, reflecting the differential impacts of the health restrictions across industries.
Gross value added fell in 15 of the 20 industries, with the largest falls in hospitality and tourism-related industries.
Gross value added in Accommodation and Food Services fell by 39 per cent the quarter, by 22.6 per cent in Arts and Recreation and by 21.5 per cent in Transport, Postal and Warehousing.
The National Accounts show that government policy particularly targeted those industries most heavily impacted by health measures.
This supported business income in a very difficult period where health measures to contain the spread of the virus forced many businesses to either close their doors or operate at reduced levels.
This support will provide a necessary buffer against reduced activity for some time and will help businesses recover on the other side.
While these numbers are sobering, back in May we had expected them to be even worse.
In March Treasury were contemplating a collapse in GDP of more than 20 per cent in the June quarter.
In May, Treasury was forecasting GDP to fall by over 10 per cent in the June quarter.
But with the spread of the virus being contained, on 8 May, National Cabinet agreed a three step framework to achieve a COVID-safe Australia and the lifting of restrictions by July.
As restrictions were gradually eased over the June quarter, the recovery began to take shape.
Consumer confidence had increased for nine consecutive weeks and has now recovered 70 per cent of its fall.
Business confidence has recovered nearly 80 per cent of its fall.
And of the 1.3 million people who either lost their job or were stood down on zero hours following the crisis, more than half were back at work by July.
This gives us confidence that we are better placed than most other nations, and that by containing the virus, we can chart a path to recovery and leave the worst of the economic crisis in the June quarter behind us.
But the road out will take time and there will be bumps along the way.
It is important to recognise that this fall in GDP in the June quarter does not include the economic impact from stage four restrictions imposed by the Victorian Government in early August.
This is something which will weigh heavily on the September quarter.
Today’s devastating numbers confirms what every Australian already knows. COVID-19 has wreaked havoc on our economy and our lives like nothing we have experienced before.
But there is hope and there is a road out.
Our plan for the recovery has seen hundreds of thousands of Australians already get back to work and thousands of businesses reopen their doors.
Our commitment to the Australian people is that we have your back.
We supported you into this crisis, we have supported you through this crisis and we will support you out of this crisis.
Before taking a few questions, I’m just going to run you through some slides quickly.
This first slide just refers to the fall in the GDP growth in the quarter at seven per cent, a record for, that we have never seen before.
This slide shows the contributions to the fall in GDP. As you can see, it's a household consumption story. 6.7 per cent of the fall has come from household consumption. Dwelling investment, business investment are also down. The two positives for the quarter were new public final demand and net exports. The change in inventories just reflects the caution among businesses to see a change in inventories rather than a restock or resupply.
Again, household consumption, quarterly fall, 12.1 per cent down and 12.7 per cent through the year.
This is by category. In terms of what is seen this fall in consumption, obviously transport services, hotels, cafes and restaurants. Small increases in alcoholic beverages, furnishings and household equipment, recognising that people are staying at home, people are going down to the local store, buying themselves a new computer, a new TV and obviously drinking more at home as opposed to at the local pub.
Business investment is a two sided coin here. You’ve got the new non-mining investment which is down by 5.1 per cent in the quarter, whereas mining investment is up 1.3 per cent for the quarter and as I said, three consecutive quarters of improvements in mining and as you can see from the prices, iron ore being very strong at the moment.
New public final demand, again, quarterly increase of two per cent for public final demand. This reflects the increased spending on NDIS, increased spending on health, bearing in mind new public final demand does not include JobKeeper. It does not include JobKeeper spending. It’s not in new public final demand. This is the services that we are providing.
Compensation of employees. This is the wages bill for the Australian economy. And this is the fact that you've seen that wages bill go down very substantially. Reflecting the number of people who lost their jobs over that June quarter. And obviously the quicker the jobs come back, the quicker the wages bill comes back.
This is a very important chart. Because what this shows is that you've got a growth in disposable income of 2.2 percentage points, but the contribution of the social assistance benefits was 4.4 percentage points. So without that increase in social assistance benefits, which is the coronavirus supplement, which is the increased people on JobSeeker, you would have seen negative quarter for disposable income, household income.
Household savings ratio has jumped to be 19.8 per cent. If you look back at the GFC, there was 10.9 per cent. This is a reflection of the caution in Australian households but also the fact that the restrictions mean that they can't go out and consume. This savings ratio was obviously high today but it will be important in the economic recovery, as people use their balance sheets to spend as we come out of this crisis.
And this is the international story. And this should not be lost on any Australian. We have performed better in the most difficult circumstances than all these other developed nations. Japan, the United States, Germany, the OECD average is just under 10 per cent, Canada at 11.5 per cent. Italy, France and of course the United Kingdom at over 20 per cent. And three times the fall of what we've seen here in Australia. Thank you.
So that's the story. Happy to take some questions.