The Government’s social distancing measures have likely caused the sharpest and the shortest economic contraction in history, just spanning March and April, according to Betashares.
Betashares’ chief economist, David Bassanese, said the extent to which a recession was defined as a period of economic contraction, “the good news is that Australia’s recession is likely already over”.
“That said, to the extent recession is defined as a period of subpar economic growth and persistent very high unemployment, then challenging times will likely persist for at least another six months to one year,” he said.
“While we may see a short-term bounce in economic activity from depression conditions as social distancing restrictions ease, the ongoing risk of second waves likely mean global business and consumer spending settle back to a quite subdued pace over the following months thereafter.”
Bassanese noted that the economy was already struggling before the COVID-19 pandemic as a result in a downturn in housing construction, weak business investment, and tapped out consumer spending. The pandemic, he said, had only exacerbated the issues.
“While the RBA may still be tempted to flirt with negative interest rates if the Australian dollar strengthens further, its perhaps better off pleading with other central banks not to pursue this zero sum game of competitive currency depreciation,” he said.
“It’s not helpful to the banking sector and risks further inflating a dangerous bubble in equity market valuations.”