Australian central bank sees first-half GDP slumping 10% on coronavirus lockdown

The unemployment rate in Australia is likely to be around 10% by June

A cleaner walks through a deserted shopping centre in Brisbane - Australia’s central bank governor says the nation’s economy is likely to suffer the biggest contraction since the 1930s due to the coroShow more

Australia’s central bank chief said the nation’s economy is likely to suffer the biggest contraction in national output and income since the 1930s, while holding out the prospect of a rebound on the other side of the coronavirus restrictions.

“National output is likely to fall by around 10 per cent over the first half of 2020, with most of this decline taking place in the June quarter,” Reserve Bank Governor Philip Lowe said on Tuesday. “The unemployment rate is likely to be around 10 per cent by June, although I am hopeful that it might be lower than this if businesses are able to retain their employees on lower hours.”

Australia is spiraling toward its first recession since 1991 with the country’s Treasury predicting unemployment will double to 10 per cent as restrictions to stem the spread of the virus shut down much of the services industry. In response, the RBA and government have assembled a massive fiscal-monetary injection worth 16.4 per cent of gross domestic product to aid households and firms.

Mr Lowe said one plausible scenario is that the various restrictions from the health crisis begin to be lessened closer to the middle of the year, and are mostly removed by late in the year.

“Under this scenario we could expect the economy to begin its bounce-back in the September quarter and for that bounce-back to strengthen from there,” he said.

“If this is how things play out, the economy could be expected to grow very strongly next year, with GDP growth of perhaps 6-7 per cent, after a fall of around 6 per cent,” he said.

The RBA, at an emergency meeting in mid-March, cut the cash rate to its effective lower bound, announced a bond-buying programme and a A$90 billion ($57bn, Dh209.2bn) lending facility to get credit flowing into the economy.

It has since bought more than A$45bn of government bonds to lower rates across the economy.

The RBA has gradually scaled back daily operations with benchmark three-year bond yields broadly in line with the 0.25 per cent target and as liquidity has improved.

“With conditions more settled at the moment, our plan for the immediate future is to schedule any bond auctions we conduct for three days each week – Mondays, Wednesdays and Thursdays,” Lowe said. “It is likely, though, that for the foreseeable future we will be purchasing semi-government securities weekly.”

Australian economic data has mainly been from before the lockdown or in its early stages. Key indicators showing the full force of the measures have been business and consumer confidence that both slumped by the most on record. Job advertisements and services were also hit badly.

Bloomberg Economics estimates that the economy is poised for its deepest recession in 90 years, with GDP falling by about 10 per cent in the first three quarters of 2020.