World’s Longest Growth Streak Ends as Australia Enters Recession

(Bloomberg) -- Australia's almost 29-year recession-free run has come to a close, ending the developed world's longest uninterrupted economic growth streak.

Gross domestic product declined 0.3% in the first three months of the year, government data showed Wednesday, and that downturn is set to deepen in the current quarter as the full effect of shutdown to stem Covid-19 takes hold. Treasurer Josh Frydenberg responded with a simple “yes” today when asked if Australia is in recession.

Yet the combination of one of the largest fiscal-monetary injections among Group of 20 nations and authorities' success in suppressing the outbreak means activity is already resuming Down Under. Unlike the U.S. and Japan, where governments struggled to deliver cash to those most in need, most Australians received their stimulus by May.

Scott Morrison's government is pumping A$259 billion ($180 billion), or 13.3% of GDP, into the economy to support workers, households and businesses. It is also discussing a fresh round of fiscal stimulus to put residential construction back on its feet.

“The relatively good handling of the virus and supportive economic policies will mean that Australia comes out of the crisis in better shape compared to many of our global counterparts,” said Shane Oliver, chief economist at AMP Capital Investors Ltd. “We think there will be a strong bounce back in GDP growth in the second half.”

Consumer confidence has now risen for nine straight weeks after tumbling to an almost 50-year low at the end of March. Data Tuesday showed household views on current economic conditions lifted by 15.7% and those on whether it's a good time to buy a major household item rose by 10.9%. Spending data by the major lenders reflects the renewed optimism.

Today's GDP report showed the household savings ratio climbed to 5.5%, the highest since 2016. These funds will likely be unwound as the job market recovers should households feel confident enough about the recovery.

“The outlook, including the nature and speed of the expected recovery, remains highly uncertain,” RBA Governor Philip Lowe said Tuesday. “In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”

Meantime, rising commodity prices are boosting miners' profitability, with the terms of trade 2.9% higher in the first three months of 2020, pushing the current account surplus to a record A$8.4 billion ($5.8 billion). Yet, miners will be keeping a watchful eye on the nation's currency, which has surged almost 20% in the past two-and-a-half months.

What Bloomberg's Economists Say

“Typically backward looking national accounts releases contain an array of hidden trends that are often overlooked. Mining investment has climbed to a 7-year high, Australia's terms of trade have risen and exploration intentions are elevated. This bodes well for the recovery.”

James McIntyre, economist

The Australian dollar edged a little lower after the GDP release and traded at 69.31 U.S. cents at 5:36 p.m. in Sydney.

Today's data set up an end to Australia's record run of avoiding two straight quarters of shrinking GDP -- the local definition of recession -- after it dodged downturns during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis.

Australia has gone so long without a recession that the last time one hit, Vanilla Ice's “Ice Ice Baby” was on the charts and “The Silence of the Lambs” was showing at the movies.

The recession-free streak really comes down to its definition. The U.S. National Bureau of Economic Research defines it as a significant decline in economic activity lasting from a few months to more than a year. Australia has experienced such periods since 1991 without meeting the local definition -- until now.