We are in a recession… What does that mean?
The ‘lucky country’ has managed its way out of a recession for almost 30 years. But the latest downturn has taken some of the world’s economies with it. Australia included. So after such a long stint without one, what do we need to know?
What is a recession?
A recession is a period when the economy is contracting rather than expanding and is often accompanied by a significant rise in unemployment rates.
When people spend less money, businesses tend to need to let employees go. As opposed to when the public are feeling positive and spending money, they’re hiring. Generally as a result of growth.*
Formally announcing that the country is in a recession is typically dependent upon Australia’s gross domestic product (GDP), and is assessed over 2 successive financial quarters. Not just the performance of the economy over a day or month. A recession will typically require two successive quarters where Australia’s GDP has fallen.
GDP is the value created by goods and services produced inside Australia such as government spending, household consumption and business investment.
What are the numbers?
The recent confirmation that Australia is in a recession had been speculated by many since the first quarter figures showed a 0.3 percent drop in GDP (Jan-March 2020)*. And was expected to worsen since the second COVID-19 lockdown measures were announced.
Recent figures have shown that the Australian GDP has contracted by 7 per cent in the second quarter (April – June 2020)***. This is the worst fall on record. As these two quarters were consecutive declines, Australia was announced to be in a recession.
Statistics show households are now saving almost 20 per cent of their disposable income in comparison to 6 per cent in the first quarter 2020****.
What’s the forecast?
It is difficult to make predictions during a pandemic.
Some economists believe that the worst hit to the GDP has passed, however the second wave of lockdown measures in Melbourne may have an impact.
The RBA expects unemployment will continue to rise as many businesses are forecast to close once Government COVID support schemes begin to be withdrawn.
What can we do?
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IMPORTANT INFORMATION: This blog has been prepared by Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licences (Number 233209). The information and opinions contained in this presentation is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. Any individual making any investment or borrowing decisions should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to borrow funds or purchase, sell or hold any particular investment. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of, credit contract entered into or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog may change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.