The nation's largest mortgage lender says the economy is poised to show one of its biggest contractions on record in Q3
The nation’s largest mortgage lender says Australia is already back in a recession as COVID-19-related lockdowns continue to bite.
Commonwealth Bank said the economy is poised to show one of its biggest contractions on record in the third quarter, according to a MarketWatch report. On Friday, CBA lowered its expectations for national output in the three months through September, predicting that gross domestic product would fall 4.5% from the previous quarter. That’s a considerable downgrade from the bank’s last forecast, which projected that the economy would contract 2.75%.
“For all intents and purposes, the Australian economy is currently in a manufactured recession as we go through another huge negative shock,” said Gareth Aird, head of Australian economics at CBA.
The bank’s dour outlook comes as data shows that retail sales collapsed in Sydney in July as lockdowns were extended, MarketWatch reported. Based on current estimates, the lockdown in Sydney – a city that accounts for about one-third of national output – could last until November.
With Victoria also in lockdown, more than half of Australia’s population is being impacted by constraints on their mobility, MarketWatch reported.
Retail sales fell nationally by 2.7% in July, with sales in New South Wales falling 8..9% – the largest drop by any state since August of 2020, according to data from the Australian Bureau of Statistics.
Aird said that more than half a million workers have already been furloughed in the current lockdowns, with the unemployment rate predicted to rise to 5.3% by the end of the year.
Data due next week from ABS is expected to show that activity in the second quarter was also soft, MarketWatch reported.
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While the economy was doing well, the arrival of the delta variant in NSW in June and the subsequent COVID-19 outbreak “changed the game for the Australian economy,” Aird said. That indicates a risk that the economy shrank in Q2, virtually guaranteeing a technical recession – defined as two consecutive quarters of economic contraction.
“Such an outcome would rubber-stamp that the Australian economy is in recession,” Aird said.
