Australia is expected to experience the “biggest fall” in national production and income since the Great Depression as it grapples with the economic impact of the coronavirus pandemic.
Reserve Bank Governor Philip Lowe has painted a bleak picture of Australia’s economy as the government tries to chart a recovery plan from COVID-19.
dr Lowe warned that the next few months “will be difficult” as Australia’s GDP is expected to fall by around 10 per cent in the first half of 2020, with most of the contraction coming in June.
Total hours worked are also expected to fall by 20 per cent and unemployment is expected to hit a staggering 10 per cent – a level not seen in Australia since April 1994.
Reserve Bank Governor Philip Lowe painted a bleak picture of Australia’s economy as the government tries to craft a recovery plan for COVID-19
Australia’s economy has taken a major hit due to the coronavirus pandemic, with the country’s GDP expected to fall 10 percent in the first half of the year. Pictured: A lone shopper at the Queen Victoria Building in Sydney
“I’m confident it could be lower if companies are able to keep their staff working lower hours,” he told reporters in Canberra on Tuesday.
“Without the government’s JobKeeper wage subsidy, the unemployment rate would have been much higher.”
Centrelink has processed 517,000 jobseeker applications since March 16 and in six weeks the government will have processed a regular year’s applications.
dr Lowe said it was difficult to estimate how many workers would remain employed in the coming months, but the unemployment rate was likely to remain above 6 percent for the next few years.
The economic downturn is a direct result of Australia’s efforts to contain the coronavirus and will only worsen while the measures are in place.
dr However, Lowe suggested the economy could bounce back as early as September if the country eases restrictions by mid-year.
“If things develop like this, the economy could be expected to grow very strongly next year, with GDP growth of perhaps 6 to 7 percent, after a decline of around 6 percent this year,” he said.
“However, there is quite a bit of uncertainty around the numbers, with the exact profile of the recovery dependent not only on when restrictions are lifted but also on the dissipation of the uncertainty people feel about the future.
“We can be confident that our economy will recover and that we will see it recover. We must remember that once the virus is satisfactorily contained, all of these factors that have made Australia such a successful and prosperous country will still be in place.
Centrelink has processed 517,000 jobseeker applications since March 16 and in six weeks the government will have processed a regular year’s applications
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“The timing and pace of this recovery will inevitably depend on how long we have to restrict our economic activities, which in turn depends on how effectively we contain the virus.”
However, if restrictions remain in place or have to be re-imposed due to an unexpected surge in coronavirus cases, the recovery will be delayed and stalled.
“In that case, the loss of income and jobs would be even more pronounced,” he said.
The RBA also warned that even if restrictions are lifted soon, Australia shouldn’t expect to get back to business as usual any time soon.
dr Lowe said consumer and business caution is likely to remain even after restrictions are lifted.
“In the coming months, despite our best efforts, we are likely to lose some businesses and some of those businesses will not reopen.
“We are all learning to work, shop and travel differently.
“Some of these changes are likely to stay with us and require a rethinking of business models.”
The central bank also expects year-end inflation to turn negative in the June quarter.
“The sharp drop in oil prices combined with the introduction of free childcare and the postponement or reduction of some price increases make this very likely,” he said.
Economic data arriving in the coming months will paint a sobering picture of the state of the economy, said Dr. Lion.
“But as Australians digest this economic news, I would ask you to remember that time will pass and that a bridge has been built to take us to the other side.”
“With the help of this bridge, we will recover and the economy will grow strongly again.”
In a sign that normalcy is still a long way off, beachgoers in Sydney’s east were shouted at by lifeguards on Tuesday to “keep swimming” because they are only allowed to exercise in the water and sand
Earlier, minutes of the RBA’s April 7 monthly meeting showed board members agreed that income support measures like the federal government’s JobKeeper program would help cushion the COVID-19 blow to households, even as business conditions eased and investments deteriorated.
The Reserve Bank chose not to change the interest rate this month after two coronavirus-inspired cuts in March took it to a record low of 0.25 percent – where it is expected to remain for some time.
The bank also reiterated a 25 basis point yield target for three-year Australian government bonds after introducing quantitative easing measures at an emergency meeting on March 18.
To date, the Reserve Bank has purchased approximately $47 billion worth of government bonds through daily auctions in the secondary market.
Initial daily purchases were quite large — $4 billion and $5 billion per day — as the bank was keen to underscore its commitment to the goal and alleviate some of what were then very serious dislocations in the government bond market.
As market conditions have improved and the three-year yield has settled at around 25 basis points, the RBA has scaled back its daily bond purchases.
Over the past few days, purchases have averaged around $750 million.
“We will ramp up these purchases again as needed and will purchase bonds in any amount needed to meet our goals,” said Dr. Lion.
