Australia Economy Could Slide Back Into Recession, Citi, AMP Say - BNN

(Bloomberg) -- Australia’s economy may have shrunk slightly in the three months through June, setting up the bad “optics” of a technical recession when combined with the lockdown-induced contraction expected for the current quarter, according to Citigroup Inc. and AMP Capital Investors Ltd.

While the economy performed pretty well in the second quarter, a fall in net exports is likely to be among factors that drag gross domestic product negative, Citi’s Josh Williamson and AMP’s Shane Oliver said ahead of Wednesday’s release. The range of GDP estimates in Bloomberg’s survey runs from the -0.1% forecast by the pair up to more than +1%, an unusually wide divergence.

Net exports are “expected to out-weigh all positive domestic growth drivers including household consumption, government demand, business investment” and others, said Williamson, chief economist for Australia at Citi. “The optics of such a result would be poor.”

Sydney is now in its 10th week of lockdown and Melbourne and national capital Canberra are also under stay-at-home orders as authorities struggle to contain an outbreak of the delta variant of coronavirus. A second-quarter slump would be a surprise, as the more likely avenue for recession was expected to be shutdowns extending into the fourth quarter for a negative second half of 2021.

Australia posted consecutive quarterly GDP contractions in the first half of 2020 as Covid swept the global economy, ending an almost three-decade stretch without a technical recession.

Consumer spending, plant and equipment investment and government spending are likely to have added to June quarter GDP growth, said Oliver, chief economist at AMP. But this looks likely to be just offset by a drop in -- or stagnation for -- housing investment and non-residential building and significant detractions to growth from inventories and net exports, he said.

“The ‘recession’ concept is less meaningful than usual in relation to lockdowns as it’s not a normal cyclical recession and the economy should recover more quickly,” Oliver said. “But the optics would be bad, and news of another recession would not be good for confidence.”

Inventories data, due at 11:30 a.m. in Sydney Monday, and net exports out at the same time Tuesday are the last readings economists will factor in to produce their final GDP estimates before Wednesday’s report.

©2021 Bloomberg L.P.

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Australia Economy Could Slide Back Into Recession, Citi, AMP Say - BNN
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