Australia’s economy is expected to shrink dramatically this year as the global economy suffers its worst recession since the Great Depression.
- Australia’s economy will likely be one of the worst-hit economies in the Asian region, shrinking by 6.7 per cent this year
- The IMF is tipping the global economy will shrink by 3 per cent this year, but advanced economies will fare worse, falling by 6.1 per cent in 2020
- The domestic economy will rebound by 2021, with growth of 6.1 per cent
The International Monetary Fund (IMF) has warned Australia’s economy would likely be one of the worst-hit economies in the Asian region as the global community struggles to contain the spread of the coronavirus.
The IMF’s latest forecasts, contained in its updated World Economic Outlook, paint a dire picture for growth and unemployment in 2020.
It said the “Great Lockdown” was like nothing the world had seen and the fallout would be hard to predict.
Its central scenario was that Australia’s economy would shrink by 6.7 per cent this year, while unemployment would average 7.6 per cent.
“This crisis is like no other,” the report warned.
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.”
Global growth will shrink by 3 per cent this year
The IMF tipped the global economy would shrink by 3 per cent this year, making it a deeper contraction than during the 2008-09 global financial crisis.
But it estimated growth among advanced economies — where several economies are experiencing widespread outbreaks and deploying containment measures — would fare worse, falling by 6.1 per cent in 2020.
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It forecast economic contractions in the United States (–5.9 per cent), Japan (–5.2 per cent), the United Kingdom (–6.5 per cent), Germany (–7.0 per cent), France (–7.2 per cent), Italy (–9.1 per cent), and Spain (–8.0 per cent).
But it assumed the pandemic would fade over the second half of 2020 and containment efforts will be gradually unwound, allowing the global economy to partially bounce back in 2021, to grow by 5.8 per cent.
However, it warned there was considerable uncertainty surrounding its forecasts and much worse growth outcomes are possible.
“As of early April 2020 the path of the COVID-19 pandemic remains uncertain,” the report said.
“Strong containment efforts in place to slow the spread of the virus may need to remain in force for longer than the first half of the year if the pandemic proves to be more persistent than assumed in the World Health Organisation baseline.
“Once containment efforts are lifted and people start moving about more freely, the virus could again spread rapidly from residual localised clusters.
“Moreover, places that successfully bring down domestic community spread could be vulnerable to renewed infections from imported cases. In such instances, public health measures will need to be ramped up again, leading to a longer downturn than in the baseline forecast.”
Effective policies would be needed to forestall worse economic outcomes.
“Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health,” it said.
“The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing health care expenditures to strengthen the capacity and resources of the health care sector while adopting measures that reduce contagion.”
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Australia’s economy will rebound by 2021
The report forecast Australia’s economy would contract by 6.7 per cent this year, before rebounding in 2021 with growth of 6.1 per cent.
It estimated the unemployment rate would average 7.6 per cent across 2020, and increase to an average of 8.9 per cent for 2021.
The Morrison Government this week released figures showing it expects Australia’s unemployment rate in the June quarter will hit 10 per cent.
The IMF projected economic contractions in Japan (–5.2 per cent), Korea (–1.2 per cent), Taiwan (–4.0 per cent), Singapore (–3.5 per cent), Hong Kong (–4.8 per cent), Thailand (–6.7 per cent), and Malaysia (–1.7 per cent).
However, it said New Zealand’s economy would experience a larger downturn than Australia’s, shrinking 7.2 per cent.
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China’s and India’s economies were expected to record positive growth this year, at 1.2 per cent and 1.9 per cent respectively.
The IMF said the output loss associated with this health emergency and related containment measures would likely dwarf the losses that triggered the global financial crisis.
“First, the shock is large,” it said.
“Second, like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.
“Third, under current circumstances there is a very different role for economic policy.”
But the report said advanced economies with “strong governance capacity, well-equipped health care systems, and the privilege of issuing reserve currencies are relatively better placed to weather this crisis”.
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