It’s official – we’re not in recession

The Australian economy has avoided a technical recession (as defined by two consecutive quarters of negative GDP growth) with new data showing the economy grew 0.4% during the March quarter in seasonably adjusted terms.

Economists had been tipping GDP could fall by up to 0.7% in the first quarter of the year, but improved trade figures – boosted by China’s ongoing economic recovery – helped to push GDP back into the black.

The data reveals that the main positive contributors to GDP were imports (up 1.6 percentage points), exports (up 0.6 percentage points) and household final consumption expenditure (0.3 percentage points). This will give considerable weight to the Rudd Government’s argument that its stimulus packages have helped boost the economy.

But in a worrying sign for small business, the largest negative contribution to GDP came from private business investment, which fell -1.1 percentage points.

So is the worst over? Can we now say Australia will get through this downturn without slipping into a technical recession?

CommSec economist Savanth Sebastian has hailed the GDP figures are an extremely positive result.

“Here we are with an actual expansion in the economy, a great result for the economy,” he told news.com.au.

“You’d expect going forward, it’s a lot brighter scenario.”

But other economists remain concerned about the conditions being experienced by the business sector, where investment has collapsed and confidence remains low.

“Beneath the headline is a corporate sector in distress,” TD Securities senior strategist Annette Beacher said.

“And a corporate sector in distress will see the converse of the commodities boom: falling profits and investment, job shedding and price falls.”

Commonwealth Bank chief economist Michael Blythe was more blunt, saying Australia was still in recession regardless of what the official data might show.

“We’ve dodged the recession bullet for the time being, but in reality we’ve had five quarters of sub-trend growth and unemployment has gone up in that period. So while we might not be officially able to tick off recession, to all intents and purposes, we are there,” he told Business Spectator.