Its Economy Has Contracted 7 Percent In The Second Quarter Of 2020, Australia Is Preparing For A Recession

Illustration. (Photo: Unsplash)

JAKARTA - The Australian government warned that their economy will face a recession, because it is almost certain that there will be a contraction in the second quarter of 2020. Previously, the Kangaroo country contracted 0.3 percent in the first quarter of this year.

The cause is none other than the COVID-19 pandemic which caused the country to experience the largest budget deficit since World War II. Since pandemic status was declared, the Australian government has spent tens of billions of dollars dealing with the impact of the virus.

However, this massive expenditure is not in line with the usual income from the industrial sector and export-import activities. This pandemic has further exacerbated the condition of Australia after struggling early last year with a massive forest fire disaster.

Meanwhile, the Australian government predicts its economy will contract by up to 7 percent in the second quarter of 2020. Therefore, Australia must face a recession for the first time in nearly three decades.

Finance official Josh Frydenberg also said that the budget deficit could soar to A $ 185 billion by June 30, or nearly one-tenth of the country's total GDP. In the previous 12 months, Australia's budget deficit was also recorded at US $ 86 billion.

"These rough numbers show the harsh reality that Australia has to experience," said Frydenberg, quoted by Channel News Asia, Friday, July 24.

The deficit estimates stem from massive stimulus spending that was deliberately disbursed to keep the economy afloat and prevent an economic slowdown from spreading. The Australian government has spent about 289 billion Australian dollars to protect the country and its citizens.

As a result of the COVID-19 pandemic, the unemployment rate in Australia has also jumped quite sharply, namely 7.4 percent, or the highest in the last two decades. This figure is expected to increase to 9.3 percent in December 2020.

However, the Australian government remains confident and estimates that its economy can grow again in the third quarter of 2020. They reasoned that social restrictions have begun to loosen and people have started to return to work.

Frydenberg estimates that Australia's GDP will grow to 2.5 percent in 2021 with the assumption that international social restrictions will be lifted in January.