We're just finding out how bad the COVID-19 GDP 'dip' is

Australia is now almost certain to enter its first recession since the early 1990s.

Although there was optimism that Australia could avoid a technical recession with a positive result in the March quarter, that was dashed yesterday. Australian GDP in the March quarter came in 0.3 per cent in the red.

Despite net exports and government demand growing, household consumption and underlying business investment fell enough to tip GDP into negative territory.

Household spending slumped despite the toilet paper hoarding and hand sanitiser splurge.

Recession is now all but certain considering the Q1 result only accounted for a handful of days of lockdown restrictions.

NAB, for example, thinks the June quarter will be negative by 8 per cent and while there might be a rise in the September quarter, it will take until mid-2022 to recover to pre-crisis levels.

The bottom?

But GDP, or economic activity generally, may be already recovering just as the extent of its fall comes to light.

Restrictions are easing across Australia and businesses hit by shutdowns — from tour operators to pubs — hope consumers will return.

Of course, this will be easier in Australia than for countries more heavily hit by COVID-19. But Bloomberg Intelligence also believes the worst of the output fall is over globally.

Economists Dan Hanson and Tom Orlik declared overnight that “the story of activity beginning to bottom out makes sense”.

They believe in May the global economy contracted at an annualised rate of 2.3 per cent. This is still a contraction but it is less than half of April’s 4.8 per cent drop.

But their trackers of activity gauges, using a broader range of indicators, suggest economic output actually rose in May even if they were off low levels.

Other telling factors were US jobless claims slowing and the easing of lockdown restrictions in some jurisdictions.

“The broader picture coming from timely indicators – the tracker included; is that the worst of the economic impact from the pandemic may be past us, but recovery will be a slow process,” they said.