A recession is generally defined by economists as two consecutive quarters of negative GDP, an event which last occurred in Australia in 1991. During this recession, commonly known as the “recession we had to have”, a phrase coined by the then Treasurer Paul Keating, three out of the four quarters from the September 1990 quarter to the June 1991 quarter were negative. Australia has had the odd negative quarter, such as in the September quarter of 2016 and the March quarter of 2011, but not two in a row.
The latest figures released by the ABS indicated second quarter GDP grew by 0.8%, maintaining the year-on-year figure at 1.8% (after revisions). This figure was essentially in line with the median forecast of 0.8%-0.9% and well above the more pessimistic forecasts around at the end of August. (In their defence, the median forecast has risen from 0.5% just in the last week.)
Despite the figures being largely in line with median forecasts, bond yields and the Aussie dropped on the release of the figures. 3 year bond yields finished 5bps lower at 1.97% and 10 year yields were 7bps lower at 2.60%. The local currency dropped from 80.15 U.S. cents to 79.90 U.S cents and then drifted down further as the day progressed.
The quarterly figures were driven by exports and state government infrastructure expenditure, while business destocking acted as the largest drag.