Australian economy was already weak before pandemic

The latest Nowcast and State Leading Index reports indicate that Australia's GDP was decreasing before the impacts of COVID-19.

Friday 27 March 2020

Australia’s gross domestic product (GDP) is expected to have shrunk by 0.1 per cent in the March 2020 quarter according to the latest Nowcast from the Melbourne Institute:  Applied  Economic &  Social Research at the University of Melbourne.

This finding reduces annual GDP growth for March 2020 to 1.6 per cent (from 2.2 per cent annual growth in the December 2019 quarter). The Nowcast is an estimation of current growth in GDP based on recent economic data.

The Nowcast is backed up by the State Leading Index of Economic Activity, also released today by the Melbourne Institute. This shows that from March 2019 to February 2020, all mainland state economies performed well below their trends.

The findings reflect only the initial impact of COVID-19 but show that Australia’s economy was already weak before the pandemic. The researchers expect the situation to worsen over the coming months, making a recession almost certain.

"The economic and financial effects of COVID-19 have been devastating. However, the global economic landscape was weak before the virus. In the US, soft consumption and business investment had already led to significant weakness in longer-term US Treasury yields over the course of 2019. The coronavirus has solidified and augmented this weakness. GDP growth is expected to be negative for successive quarters,” said Dr Sam Tsiaplias, Senior Research Fellow in the Macroeconomics Research Program.

The state index suggests that economic conditions across major states are likely to worsen in the coming months as disruptions caused by the coronavirus outbreak filter through to economic activity.

“What we see now is just the beginning of what is to come when the negative impacts of the lockdowns, to stem the spread of the outbreak, start to take their toll on economic activity across major states. The announced stimulus packages, at both the Federal and State levels, are encouraging and helpful to cushion the blow to the economy, particularly to small businesses and employees in retail and hospitality industries whose revenue and income will be most affected by the lockdowns,” said Dr Viet Nguyen, Senior Research Fellow in the Macroeconomics Research Program.

“According to the State's Leading Indexes, economic activity across the major states are already well below their trends and expected to decline further in the coming three to six months. The question really is by how much.”

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