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Australia's file run of financial development has "formally come to an finish," says Treasurer

Hundreds of people line up outside an Australian government welfare center, Centrelink, in Melbourne on March 23, 2020.

William West | AFP via Getty Images

Australia became the last country to officially enter recession on Wednesday as the coronavirus pandemic continues to devastate economies worldwide.

Data released by Australia's Bureau of Statistics on Wednesday showed the economy contracted 7% in the June quarter after contracting 0.3% in the March quarter. It was "the biggest quarterly decline in history" and plunged the country's economy into a technical recession defined as two consecutive quarters of the quarterly decline.

According to a Reuters poll, June quarter GDP pressures fell below economists' expectations of a 5.9% decline.

"Our record run of 28 years of economic growth in a row has now officially come to an end," Australian treasurer Josh Frydenberg told reporters on Wednesday.

"Today's devastating numbers have confirmed what every Australian knows: that Covid-19 has devastated our economy and our lives like nothing we have ever seen before. But there is hope and a way out," said Frydenberg.

In response to the economic downturn, HSBC's Paul Bloxham said the bank was forecasting a "more bearish" decline of 7.5%.

"We had a lot in mind that service consumption would be particularly weak," Bloxham, UK bank's chief economist for Australia, New Zealand and global commodities, told CNBC's Street Signs on Wednesday. "There was a great deal of uncertainty about what would happen to the consumption of services since large parts of the economy were closed and we had never had this event before."

We assume that there will be a strong recovery from the fourth quarter. Then we assume that the Victorian economy will reopen.

Outbreak in Victoria

Looking ahead, Bloxham said the "big debate" was now over on whether Australia would see a pickup in economic growth in the third quarter – particularly with the recent flare-up of coronavirus cases in Victoria state.

"75% of the economy, all states outside of Victoria, are on the recovery path," said Bloxham. "Victoria goes the other way, of course, because it's still … locked." Stricter social distancing measures have been put in place in Victoria, one of Australia's most populous states, after seeing a surge in some cases in recent months.

Taking into account the impact of the setback on the Victoria economy, Bloxham said HSBC expected a "small spike" in Australian GDP in the third quarter.

"We expect a strong recovery from the fourth quarter onwards. Then we expect the Victorian economy to reopen," he said.

"We're working on the assumption here that Q3 GDP is very, very weak, but only slightly positive, which is being driven by the rest of the economy outside of Victoria," he added. "The entire economy will be on a recovery path by the fourth quarter, and this recovery that we expect in the fourth quarter … especially in Victoria, will give us a much stronger … recovery path."

"That gives Australia what we have described as a U-shaped recovery," said Bloxham.

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