Australian Treasurer Warns Economy Facing Challenging Times

CANBERRA, AUSTRALIA - OCTOBER 06: Treasurer Josh Frydenberg during the budget delivery in the House of Representatives on October 06, 2020 in Canberra, Australia. The Morrison government's second budget was published on Tuesday, after its release in May was delayed by the COVID-19 pandemic. Treasurer Frydenberg has delivered a federal budget deficit of $213.7 billion in the wake of coronavirus and related shutdowns, with a number of tax cuts to be introduced to help boost the economy and create jobs as Australia experiences its first recession in 29 years. (Photo by Sam Mooy/Getty Images)

Treasurer Josh Frydenberg has warned the economy faces challenging times ahead with coronavirus lockdowns in the country’s two major states putting jobs and businesses at risk.

Economists are predicting the economy to contract by as much as four per cent in the September quarter as a result of the lockdowns in NSW and Victoria.

Victoria has flagged that its sixth lockdown will extend beyond Thursday, a further negative for the outlook.

The June quarter national accounts are released on Wednesday, which will show how the economy was faring heading into this expected downturn.

There are concerns the economy may already be in a technical recession should the June quarter result be a negative and given expectations for the September quarter.

Two consecutive quarters of contraction constitute a technical recession.

Asked on the Nine Network whether Australia is heading into a recession, Frydenberg said the median market expectation is for a slight increase in economic growth.

“It will be line ball. Our economy faces some very challenging days ahead,” he said.

“The lockdowns in our two biggest states are not only costing jobs, seeing businesses close, they are increasing our debt burden as well and having a toll on people’s mental health.”

He again urged the states and territories to stick to the plan that will start to see restrictions ease once the vaccination rate hits 70 per cent for double-dosed Australians aged 16 and above.

At this stage economists’ forecasts centre on a 0.5 per cent expansion in the June quarter, a marked slowdown after the rapid recovery from last year’s recession seen in the previous three quarters.

However, forecasts range as low as a 0.1 per cent contraction.

“The optics would be bad, and news of another recession would not be good for confidence,” AMP Capital chief economist Shane Oliver said.

Economists will firm up their growth forecasts after a spread of quarterly reports over the next couple of days.

The Australian Bureau of Statistics will release its “business indicators” report for the June quarter on Monday, which are expected to show company profits rising by 2.5 per cent.

Business inventories - stock on shelves and in warehouses - are also forecast to rise by one per cent.

International trade and government finance figures for the June quarter are released on Tuesday.