Shock for model economy: Australia plunges into first recession since 1991

The Australian economy has been growing almost unstoppably for 28 years. But now the corona pandemic is ending the permanent boom Down Under. A rapid recovery is not in sight for the time being because the country's own currency is strengthening and a lockdown is slowing down an important province.

The Australian economy plunged into recession in the second quarter for the first time since 1991 because the corona pandemic forced thousands of companies to close and unemployment rose. The gross domestic product collapsed in the period from April to June by 7.0 percent compared to the previous quarter, as the statistics office announced. That was the biggest slump since the quarterly statistics were introduced in 1959.

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Australian Finance Minister Frydenberg had to announce the first recession in 28 years.

(Photo: imago images / AAP)

The permanent upswing had already ended at the beginning of the year when the economy shrank by 0.3 percent. It is also the first time that Australian economic output has declined for two consecutive quarters since 1991. "This crisis is like no other," said Treasury Secretary Josh Frydenberg in Canberra. "Our record series of 28 years of economic growth in a row is now officially over."

Even during the global financial crisis of 2008, Australia was able to avoid a recession, i.e. a phase in which economic output fell – as the only one of the 37 members of the Organization for Economic Cooperation and Development (OECD). The main reason for the sharp decline in the second quarter was the slump in private consumption. "This is a devastating day for Australia," Prime Minister Scott Morrison said in Parliament.

The central bank cut interest rates radically

Compared to other large industrial nations, Australia did well: The German economy collapsed by 9.7 percent in the spring, the British by more than a fifth. More than a million people have lost their jobs since March because the shutdown to combat the pandemic crippled entire industries. The government has issued more than 300 billion Australian dollars (around 185 billion euros) in economic aid. However, the unexpectedly severe slump in spring could make further measures possible.

"Our obligation to the Australian people is that we have their backs," said Frydenberg. The central bank also wants to take countermeasures if necessary. It had already lowered its key interest rate to a record low of 0.25 percent in March in order to boost the economy with cheap money. "The way back from the Corona recession will be a long one," said the chief economist of the BIS Oxford Economics Institute, Sarah Hunter. "We assume that it will take until early 2022 for the economy to return to pre-pandemic levels."

Strong "Aussie" as an additional obstacle

Australian dollar / US dollar , 73

But Australia is not only grappling with the economic consequences of the Corona crisis, but also with a sharp rise in the domestic currency, especially compared to the US dollar. The growing "Aussie" is making exports more difficult for Australian companies, and businesses that are settled in the US currency are less popular with corporations. The Australian central bank, the Reserve Bank of Australia, only confirmed its loose monetary policy stance on Tuesday and expanded its credit program for small and medium-sized companies.

The renewed lockdown in the important province of Victoria is also preventing a rapid recovery. Finance Minister Frydenberg said that this will put a "heavy" strain on the economy in the current summer quarter. The rise in new infections caused the government to impose a lockdown of several weeks in Melbourne – the state's capital.

. (tagsToTranslate) economy (t) shock (t) model economy (t) Australia (t) recession