How bad (and when) is the recession going to be?

First we need to define what a recession actually is.

 
Formal definition: A recession is defined as two successive quarters where Gross Domestic Product (GDP) growth is negative.
Informal definition: A recession is when (for two quarters in a row) our economy gets smaller.

 

Ok so what exactly is GDP then?

 
Formal definition: Private Consumption + Gross Investment + Government Investment + Government Spending + (Exports – Imports).
Informal definition: The sum of every single transaction in the country, accounting for imports and exports.

 

So if the total volume of transactions fall two quarters in a row, we go into a recession. That’s why the government is telling everyone to spend more.

 

Below is our GDP growth chart since our last recession (you may need to zoom on mobile).

 

source: https://tradingeconomics.com/australia/gdp-growth

 

Note, for us to technically be in a recession we need TWO quarters in the negative. We’ve had a few negative quarters here and there, but not two in a row since 1991.

 

Now, Josh Frydenberg has been estimating a 10% GDP fall by June 2020.

 

Looking at the past figures above you can see now how serious that number is. The biggest number on that chart is 3%! Note his estimate is 10% over two quarters though.

 

The ABS releases the data for the Jan 2020 – March 2020 quarter tomorrow. I’ll send a second email tomorrow with a quick update of those GDP figures.

 

But since COVID only became an issue late March the really interesting figures will be from the April 2020 – June 2020 quarter. That data will come out September 3.

 

It’s annoying that the data comes out so late. So we won’t actually know we are in a recession until after we’ve been in it.

 

But in saying that we probably already know we are in a recession.

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