Australia's GDP to fall 10%, jobless rate to hit 10% in first half: RBA

Sydney

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 of Australia (RBA) governor Philip Lowe said in a speech in Sydney 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 spiralling towards its first recession since 1991 with the nation'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.

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In his speech broadcast live on the RBA's website, 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 to 7 per cent, after a fall of around 6 per cent."

The RBA, at an emergency meeting in mid-March, cut the cash rate to its effective lower bound, and announced a bond-buying programme and a A$90 billion (S$80.89 billion) lending facility to get credit flowing into the economy. It has since bought more than A$45 billion 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," Mr Lowe said. "It is likely, though, that for the foreseeable future we will be purchasing semi-government securities weekly."

The number of coronavirus infections in Australia is relatively small with the rate of growth slowing significantly in recent days.

However, the outbreak has spread rapidly from less than 100 cases in March to more than 6,600 now, prompting the government to shut non-essential businesses, ban overseas travel and large gatherings while enforcing social distancing rules.

Mr Lowe said the economic recovery would be slow when these restrictions are eventually eased.

"Whatever the timing of the recovery, when it does come, we should not be expecting that we will return quickly to business as usual," he said. "Rather, the twin health and economic emergencies that we are experiencing now will cast a shadow over our economy for some time to come." BLOOMBERG, REUTERS