The financial destruction of the “once in a century” crisis caused by the coronavirus pandemic is forcing leading economists to shift the focus of the impending recession.
Australia is now set to experience three consecutive quarters of GDP shrinkage, according to the Westpac market outlook released this week.
The report, however, praised the federal government’s budget response, revising its unemployment forecast from 17% to 9% by mid-year due to the JobKeeper package of $ 130 billion.
But the positive feeling that results from the Morrison government’s willingness to spend money will not last, the report warns.
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Australian stocks jumped in value this week and closed almost 3.5% higher at the close of trade on Thursday, but the heavy losses inflicted since mid-February will resume.
“The markets are currently supported by government stimulus packages,” said report from Westpac chief economist Bill Evans.
“But as we progress in the June quarter and the stimulus packages fade in the background, the economic damage and pessimism around the virus will dominate the markets.
“The prospects are now for a deep recession in 2020, with a contraction in production in March, -0.7%, June -8.5% and September, -0.6%.”
Westpac then expects the rebound to come, increasing by more than 5% in the December quarter and limiting the loss for the year to 5% overall.
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The coronavirus was initially expected to stop trade for a short time, causing a heavy blow to Australia’s gross domestic product in the second quarter, then rebounding in the following three months.
But the prolonged closure of the company currently proposed by medical experts will likely have an impact on the country’s economy for at least two quarters.
Leading independent economist Saul Eslake told news.com.au that this would bring the already exorbitant cost of the pandemic, which would explode exponentially.
He said the federal government has so far committed more than $ 200 billion in stimulus packages, that state governments have evicted nearly $ 50 billion and that all have missed at least $ 100 billion in taxes. due to the crippling disruption of business and commerce.
Since almost all of the relief measures have a six-month shelf life, extending support beyond two-quarters would cost the federal and state governments at least $ 500 billion, said Eslake.
“There could be pent-up demand (for some industries),” he said.
“But vacations that are not taken, meals that are not consumed, visits to the cinema or the theater that are not made cannot be replaced.
“So there are permanent losses.”
AMP Capital chief economist Shane Oliver said he expected the government to ease its closure in the coming months.
Such a lengthening of the closure of society, he said, would cause “real damage” to the economy as a whole.
“The bottom line will fuel construction and manufacturing, while the service industries are the hardest hit at the moment,” he told news.com.au.
Dr. Oliver said that a longer period for industries crippled by the virus could result in a loss of 20-25% of GDP, which would be greater than the loss inflicted during the Great Depression.
“As you move away, any contractions that will occur will only start flatline,” said Dr. Oliver.