“While a tentative recovery may have begun outside of Victoria, today’s record-busting 7% June quarter fall in GDP clearly demonstrates that more fiscal stimulus will be needed before recovery is on a secure footing,” Innes Willox, Chief Executive of the national employer association Ai Group said today.
“Without doubt, the downturn would have been very much worse without the timely support provided by Federal Government, the Reserve Bank and the State and Territory Governments.
“Household consumption was sharply lower in the peak months of the COVID-19 crisis partly due to a fall in incomes but also because households looked to build their reserves against the higher risk of unemployment and because some spending opportunities were simply not available.
“The private sector bore the brunt of the downturn with non-mining business investment falling by 6.5 percent in the June quarter as most businesses had more than enough existing capacity to meet the lower levels of demand. In line with the fall in investment, hours worked in the market sector plummeted by 12.2 percent.
“As a sure sign of underlying weaknesses in the economy dating from before the COVID-19 crisis, the fall in non-mining business investment in the June quarter continued a run of negative results since the December quarter of 2019 and was down 10.4 per cent over the 2019-20 year.
“As governments look to accelerate recovery, it is critical that the emphasis is on job creation and on the particular risks of unemployment faced by young people. The immediate task will be to build household and business confidence. This will be made easier by the amount households have saved over the first half of the year and the degree to which gross operating surpluses have put businesses in a position they can invest and bring people back to work.
“It is also critical that in responding to the crisis that governments also consider the underlying weaknesses in the economy dating from before the COVID-19 crisis. This was highlighted by today’s data on business investment with the fall in June quarter continuing a run of negative results since the December quarter of 2019. Incentives to improve business investment will need to be a central part of the fiscal response by the Federal Government,” Mr Willox said.