CANBERRA, Australia: The Australian economy is heading towards its worst economic performance in almost three decades, with Gross Domestic Product (GDP) for the June quarter expected to drag the growth down to its weakest level.
Prime Minister Scott Morrison downplayed the implications, pointing out that lower interest rates and tax cuts would not show up until the following September quarter, staving off a technical recession.
According to investment bank UBS, if the economy disappoints even that low bar and goes backwards in June — a possibility — the Australian economy would be halfway to a recession, defined as two consecutive negative quarters.
The prime minister remains opposed to lifting government spending to boost the softening economy, slamming Kevin Rudd’s one-off $900 cash bonus as a “knee-jerk reaction”.
The Australia economy looks destined to record its worst year of the 21st century when the national figures are released on Wednesday. Investment bank UBS has slashed its forecasts, expecting 0.2% growth in June dragging growth for the financial year to 1.1%.
For comparison, the economy grew 1.7% in the global financial crisis (GFC). The Reserve Bank of Australia (RBA) will decide whether it will again cut the official interest rate or keep it on hold. Most economists are forecasting another cut either in October or November and another early next year to bring the official cash rate to around 0.5%.
Most Australian economists think interest rates will be kept on hold in September, but reckon the RBA’s time is running out.
RBA Governor Philip Lowe acknowledged the impact of any further cuts. He said “unconventional” measures such as quantitative easing (QE) or negative interest rates may be required if the government does not intervene.
The RBA is now considering the drastic measure of negative interest rates — meaning you could be paid to borrow money from the bank.
Speaking to the media on Monday, Morrison said a tough quarter was always part of the plan, amid “difficult global economic times”. Morrison and Treasurer Josh Frydenberg have repeatedly poured cold water on the suggestion, however. “All of this was part of this year’s budget, in the full knowledge that we would be facing a very difficult quarter, particularly in that June quarter, and I suspect the June quarter results will be soft,” he told media.
That’s partly because the impact of recent stimulus measures aren’t expected to show up until the period after.
The coalition government has reiterated that it is instead committed to achieving a budget surplus.
In the meantime, Australians will just have to ride out increasingly tough economic conditions, without any hope of a cash bonus.