Australia may officially be out of the COVID-19-induced recession, after economic activity increased by 3.3% in the latest quarter, but GDP growth is but one indication of the nation’s overall economic health.
“Technically the recession is over, but the recovery is not,” Treasurer Josh Frydenberg told reporters on Wednesday, acknowledging the difference between a recession and recovery.
A ‘technical’ recession occurs when real gross domestic product (GDP) falls in two successive quarters.
Whereas a recovery follows a recession and is generally defined as a sustained period of improving business activity during which GDP grows, unemployment falls, and the economy makes a more holistic rebound.
Speaking to SmartCompany, CreditorWatch chief economist Harley Dale says it’s not completely accurate to think of the economy by only taking into account GDP growth.
“I don’t think that is an accurate guide as to where the economy is going.”
Dale says we can have a great economic rebound, as we saw in the September quarter, but it’s important not to ignore other parts of the economy that are not doing well.
“While you have unemployment and underemployment rates at the heights they’re currently at, then you have to say there’s a long way to go before you would describe the Australian economy as being in good shape,” he says.
According to Dale, some of the nation’s recovery so far is partly assisted by government support such as JobKeeper, JobSeeker and the safe harbour policy.
And while this support may mean some businesses have continued to operate despite not being ordinarily viable, there has been an overall benefit to the economy.
“I would suspect that if you were to remove that government cover then you would find there are businesses that are unfortunately not going to be capable of surviving,” Dale says.
The September quarter saw GDP growth at 3.3% after it fell by 7% in the June quarter, according to Australian Bureau of Statistics data.
This rise in activity was a surprise for economists and businesses alike, who were expecting growth to come at a slower speed, says Dale.
The sectors that bounced back more than expected were retail and construction which will be closely watched as the summer continues.
“There is going to be a very close eye on how the retail sector fares in the Christmas holiday period,” Dale says.
Dale says people have saved more this year because of the lockdowns and restrictions, meaning that they are “cashed up” and in a good position to increase their spending.
“We are also seeing activity in construction where people are starting to use the savings that they have made to re-enter the property market,” Dale says.
“People are getting out and about and that’s good for the economy.”
When asked about what a long-term ‘bumpy’ recovery might look like, Dale says it’s “not going to be roses”.
“But we are in a situation at the end of 2020 that is considerably better than anybody thought would be the case only a few months ago,” he says.