Last year, the pandemic induced an acute economic crisis which ultimately led to a recession. We’re in a different type of economic struggle now: It’s less acute, more drawn out and with deep-seated anxiety.

“My sense is that last year it was short, sharp pain, and then the government came in and supported,” lead economist at Equity Economics, Angela Jackson, says. “This time around it’s much longer, and I think the recovery might be much harder as a result.”

The Bureau of Statistics will release the National Accounts next week, including gross domestic product (GDP) for the June quarter. If it’s a negative figure, a “technical recession” (which requires two consecutive quarters of negative economic growth) will be all but confirmed (as this quarter’s GDP is guaranteed to be sharply negative). Either way, the Australian economy has once again found itself in quite a funk.

Business investment

Another important contributor to GDP is business investment. While it’s abundantly clear small businesses have faced enormous challenges amid lockdowns in several states and territories, medium businesses and large corporations have fared much better – particularly in the lead-up to the middle of the year. You only have to look at the results from the current corporate reporting season. According to online stockbroking firm CommSec, aggregate net profit for ASX 200 companies is up 56 per cent on a year ago. Almost 75 per cent of companies have lifted profits and dividends are up 60 per cent. CommSec says JB Hi-Fi, Tabcorp, Ingenia and Domain have been among the top earnings performers. The bottom line is that the big end of town was making billions in profits earlier this year and they spent the extra cash both on returns to investors and investment projects. But it’s not all down to size. Many big companies continue to be directly impacted by the pandemic. Companies like Corporate Travel, Sydney Airport and Star Entertainment “continue to be buffeted by lockdowns and border closures”. All up, the National Australia Bank believes business investment will contribute 3.7 percentage points to June quarter GDP. But, again, that pre-dates the full effect of the Greater Sydney lockdown, the sixth Melbourne lockdown and the ACT lockdown, which is tipped to dent those investment plans this quarter, with NAB expecting the September quarter number to be “flat to negative”.

Exports and government contributions

The federal government and Australia’s export sector also make big contributions to economic output. You could be forgiven for thinking that exports will add to last quarter’s GDP, but in fact the opposite is true. Yes, the price of iron ore was on a tear, but we’re measuring “output” or volume here, not income. There have been, and continue to be, fewer shipments of iron, coal and gas out of the country. Net exports are expected to pull GDP down in the June quarter by roughly 1.1 per cent. Government expenditure for the June quarter will be made up of wages to public servants and public infrastructure. The impact of federal government economic support payments will make contributions to GDP this quarter. I’m reliably informed the contribution from the Commonwealth government is simply too difficult to forecast with any great deal of accuracy. Suffice to say that without a contribution from the government, the current economic contraction would be more profound.

Uncertainty and sustainability

Economic forecasting has become one of the hardest games in town recently. Indeed, from the corner store to big corporations, uncertainty has become the albatross around their necks. “Australian businesses, whether they are big or small, cannot continue to deal with the what-ifs and maybes — that’s no way to plan the reopening of the economy,” the Business Council of Australia argues. “This constant state of uncertainty means business has no ability to plan, whether that’s undertaking a major project, putting extra staff on for an uninterrupted tourism season or buying inventory for a local café. “We need certainty now, and we back the Prime Minister’s call to stick to the numbers and develop a detailed plan to reach the targets.” Prime Minister Scott Morrison recently unveiled a national plan to gradually lift COVID restrictions and open up the economy once 70 to 80 per cent of the population is vaccinated against the virus. The problem we have now is that only just over half the eligible population have had their first dose, and there are simply no guarantees we will ever reach the 80 per cent target.

Risk of recession

Economists expect the economy to have grown 0.5 per cent in the June quarter, but it’s possible it will be a negative number (especially given the negative contribution from the export sector). Estimates for the September quarter range from a roughly 4 per cent contraction to as much as 5 per cent. The December quarter is anyone’s guess and largely depends on vaccination rates. It’s entirely possible we are now in a technical recession — AMP Capital puts the probability at 40 per cent (almost a coin toss). The reality is many Australians already feel like they are in a recession. The billions of dollars in income support and disaster payments that have made their way to bank accounts across the nation attest to this (Service NSW still had a backlog of applications last week). Higher vaccination rates give us some hope lockdowns will soon become a thing of the past and maybe a reason why the current economic crisis lacks the panic and acute stress of last year’s when vaccines were in early development and success was far from assured. However, a sizeable chunk of the Australian economy is hurting right now and there’s no guaranteed way out. Economist Angela Jackson argues the pain is still all too real this time around. “Maybe it’s not as deep, but it’s much more profound,” she says. It’s quite shocking when the economic lights go out all of a sudden, but there’s also an anxiety tied to feeling your way back in the dark that can also be deeply unsettling.