Revealed: how an extra day in February this year could stop Australia falling into a RECESSION as unemployment surges during summer bushfire, coronavirus crisis
- Economists fear Australian economy contracted in December, March quarters
- This would mark the first technical recession in Australia since middle of 1991
- KPMG chief economist Dr Brendan Rynne said February 29 could stop that
- He predicted leap year day would stop recording of an economic contraction
- Australia’s jobless rate rose to 5.3 per cent in January 2020, new figures showed
- It surged in Victoria to highest level in 19 months to above-average 5.4 per cent
Australia could avoid falling into a recession for the first time in three decades because 2020 is a leap year.
The summer bushfires and the coronavirus are widely expected to smash the already struggling economy, with the bad news pushing up the unemployment rate in January.
Australia would be plunged into a technical recession, should gross domestic product shrink in the December quarter and also go backwards in the March quarter.
KPMG chief economist Dr Brendan Rynne, however, said an extra leap year day was likely to stop an economic contraction in the first three months of 2020 – as February 29 added an extra $5.2billion to Australia’s gross domestic product.
Australia could avoid falling into a recession for the first time in three decades because 2020 is a leap year.
‘My fellow economists are speculating about negative growth in the March quarter,’ he said.
‘But they may have missed one key point – a quirk in the Gregorian calendar, which gives us 29 days in February this year.’
Australia’s unemployment rate rose to 5.3 per cent in January up from 5.1 per cent a month earlier, official data released on Thursday showed.
Victoria’s jobless rate surged from 4.9 per cent to 5.4 per cent – the highest in 19 months, in a state where bushfire-affected resident were evacuated by the Navy from Mallacoota.
In Queensland, unemployment surged from 5.7 per cent to 6.3 per cent.
The Reserve Bank of Australia is expecting the bushfires and coronavirus to have ‘reduced GDP growth over the December and March quarters’ but stopped short of predicting an economic contraction, in the minutes of its February meeting.
Dr Rynne said the Australian Bureau of Statistics’s national accounts data for the first three months of 2020 would be unlikely to show the economy in negative territory, even though it is weak.
‘While there is an underlying weakness in economic activity consistent with potentially negative growth, the addition of February 29 into this year’s calendar may in fact mean that Australia – and possibly many other countries that follow the United Nation’s System of National Accounts – will not see this result in the March quarter 2020,’ he said.
The summer bushfires and the coronavirus are widely expected to smash the already struggling economy, with the bad news pushing up the unemployment rate in January. Pictured are Rural Fire Service volunteers battling blazes at Bilpin west of Sydney in December
During a leap year, like 2020, the March quarter has 91 instead of 90 days.
Australia’s economic growth pace of 1.4 per cent in mid-2019 was the slowest since the global financial crisis a decade earlier.
Annual GDP expansion ticked up to 1.7 per cent in the September but this level was well below the 3.2 per cent average between the time of the last recession in 1991 and 2018.
Dr Rynne said there was still underlying weakness in the Australian economy.
‘The Australian economy is stuttering at the moment,’ he said.
KPMG chief economist Dr Brendan Rynne, however, said an extra leap year day was likely to stop an economic contraction in the first three months of 2020 – as February 29 added an extra $5.2billion to Australia’s gross domestic product. Pictured is a woman wearing a face mask in Sydney
Ninety-nine per cent of cases have been in China, where tens of millions of residents are in lockdown to contain the escalating crisis
‘Underlying structural problems like weak wages growth, high household debt, and now slowing commodity prices are being compounded by extraordinary events such as drought, bushfires and the coronavirus.’
Australian wages grew by just 2.2 per cent last year, and have failed to rise above the three per cent level since mid-2013 while the household debt to income ratio of 186.5 per cent is close to a record high.
EY chief economist Jo Masters said the increase in unemployment made another interest rate cut more likely this year, with the cash rate already at a record-low of 0.75 per cent.
‘There is clearly plenty of spare capacity in the labour market, suggesting little progress in lifting wage growth any time soon,’ she said.
‘This data will reinforce expectations that the RBA will need to cut interest rates again this year.’