New figures show GDP receded in the third quarter raising prospect of recession and also likely to put pressure on federal government revenue

This article is more than 3 years old

This article is more than 3 years old

Australia’s economy slipped backwards in the September quarter, by a greater than expected 0.5%.

It is the first time in five years the economy has recorded three months of negative growth.

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When the economy previously contracted in a single quarter, in March 2011 (by 0.2%), it had suffered from the Queensland flood.

If it contracts again in the December quarter, Australia will be in a technical recession – ending 25 years of economic growth.



Australia’s annual economic growth rate has now dropped from 3.3% to just 1.8%.

Economists say it is now more consistent with the softening in the labour market that has occurred since the start of the year.

The treasurer, Scott Morrison, in a hastily convened media conference, said Labor must now support the government’s $48bn tax cut plan because the economy needed it.

“This is the ticket to the next 25 years of growth,” he said on Wednesday. “But we cannot achieve that if we cannot get the partners in this parliament that will engage with us in the national interest, that won’t be engaging in party political games, that won’t engage in negative politics and wrecking and destroying, but will engage to lift the burden on business so they can invest and employ more people.”

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James Pearson, the chief executive of the Australian Chamber of Commerce and Industry, also called for corporate tax cuts.

“Australia must not be like the frog in the pot of water that is slowly brought to boil,” he said.

“To regain our competitiveness, and therefore create and sustain jobs, we must encourage our businesses, which employ most Australian workers, to invest and grow. That includes by cutting the burden of company tax to stimulate investment.”

But the shadow treasurer, Chris Bowen, criticised Morrison’s management of the economy. “This is the second-worst economic growth result in the last 25 years,” he said. “It is true that quarterly figures do bounce around, and we would hope and trust that next quarter’s figures are much stronger after this very low base, but the fact of the matter is that this is a deeply concerning result.”

“The treasurer a few moments ago, in what I thought was a rather pathetic press conference, spent the whole time blaming the Labor party. Scott Morrison must take responsibility,” he said.

The Bureau of Statistics data showed economic activity contracted in a range of areas in the last quarter, highlighting the ongoing fragility of the economy.

Falls in public expenditure, net exports, private investment in new buildings, new engineering, and new and used dwellings all detracted significantly from growth.

Mining investment fell for the 12th consecutive quarter (down 10.6%), while non-mining investment rose by 4.8%.

Westpac economist Andrew Hanlan said one of the wettest winters on record caused disruptions, contributing to the unexpected decline in home building activity – including a 9% fall in new home building activity in Victoria.

He said lending conditions were tightened in the second half of 2015, with housing finance contracting over the half year to March 2016, and that had negative spill-over effects.

He said global growth and trade had also been lacklustre this year, while the labour market had been weaker than last year.

Michael Blythe, the chief economist of the Commonwealth Bank, said growth was also affected by the election campaign in June and July, when measures of economic and political uncertainty spiked to near-record highs.

“This uncertainty had a real economic impact on consumer and business activity,” he wrote in a note to clients. “It is not surprising that some economic drivers weakened at the time.

Both Blythe and Hanlan believe economic growth should pick up again in the December quarter.

“In a sense it should be easier for the economy to grow from here,” Blythe said.

“The income drag from falling commodity prices has ended in spectacular fashion with the surge in key bulk commodity prices. The spending drag from falling mining capital expenditure will soon be complete. What lies ahead are the benefits of rising mining production and resource exports.”

Philip Lowe, the Reserve Bank governor, acknowledged after Tuesday’s board meeting that “some slowing” in economic growth rate was likely, before it picked up again in the new year.



The RBA left the cash rate on hold this week, at 1.5%, where it will stay until February at least when the Bank returns from its summer recess.