Australia’s financial institution has predicted that the country is facing its biggest economic contraction on record and says it’s committed to supporting jobs and incomes because the government announces plans to relax pandemic-related restrictions by July.
In its quarterly statement on monetary policy on Friday, the Federal Reserve Bank of Australia (RBA) forecast that the 2 trillion Australian dollar ($1.3 trillion) economy would shrink by 10 percent within the half of the year, marking the primary recession in 30 years.
Australia saw a spike within the number of COVID-19 cases from but 100 in March to quite 6,900 now. during a bid to contain the spread, it closed borders and announced strict mobility and “social distancing” curbs, prompting many businesses to shut down and announce significant layoffs.
The government estimates that the shutdowns have cost the economy four billion Australian dollars ($2.62bn) every week and has splashed out billions of dollars to support growth and jobs.
To support activity, the RBA cut interest rates to a record low of 0.25 percent in an emergency meeting in March and launched a vast quantitative easing programme to stay borrowing costs low for banks and consumers.
Despite the aggressive monetary and monetary support, the RBA expects the annual gross domestic product (GDP) to shrink 6 percent this year, the percentage to hit 10 percent by June and remain near 7.5 percent through 2021.
Consumer prices are expected to show negative within the June quarter before returning to modest inflation by year-end.
The RBA said the speed and timing of economic recovery is extremely uncertain beyond subsequent few months.
Indeed, Australia’s banks have deferred payments on a minimum of 200 billion Australian dollars ($130.12bn) in loans, reflecting the financial pain felt by businesses and individuals, a banking body said on Friday.
Governor Philip Lowe said it had been “possible to contemplate an upside scenario where most domestic restrictions on activity are relaxed a touch sooner and therefore the economy recovers somewhat faster than within the baseline scenario”.
With fewer than 20 new infections reported every day , Australia’s Prime Minister Scott Morrison on Friday announced a three-stage decide to fully reopen the economy by July if the virus remains contained.
“We cannot allow our fear of going backwards from stopping us from going forwards,” Morrison said at a press conference .
Australia’s cafes, restaurants, gyms and cinemas will open piecemeal , gatherings of up to 100 people are going to be allowed and interstate travel are going to be permitted, he added.
“This is that the plan for a COVID-safe Australia,” he said holding up a flyer with the three steps. “This will get us back [to] where we’d like to be, as quickly as we will .”
The RBA’s baseline scenario for unemployment to remain at 7.5 percent and underlying inflation to undershoot its medium-term 2-3 percent target suggests the cash rate will remain at record lows for a few time.
Meanwhile, some economists said the RBA’s GDP forecast for a 2021 rebound is optimistic.
“We are more cautious round the recovery amid higher unemployment, a paring back in income support and assistance by end September, lower net migration, and various structural headwinds – elevated household debt, low productivity, and stagnant wages,” RBC economist Su-Lin Ong said.
“We also wonder what the ‘new normal’ post-COVID-19 seems like , including more permanent changes in expenditure and saving.”