Economists have upgraded their growth forecasts for the Australian economy, but there is little doubt among them that country is suffering its first recession in nearly 30 years, and possibly its deepest since the 1930s.
The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months in the future, confirms the economy is in recession.
The index, which measures the outlook relative to Australia’s trend rate at around 2.8 per cent, was minus 4.79 per cent in May compared to minus 5.08 per cent in April.
“Despite the slight improvement, the index growth rate remains in deep negative territory consistent with an economic recession,” Westpac chief economist Bill Evans said.
Westpac has revised its growth forecast for the first half of 2020 to a contraction of 7.3 per cent from minus 8.8 per cent previously.
This followed a slightly smaller than expected 0.3 per cent decline in growth in the March quarter and an earlier than expected easing of coronavirus restrictions.
“A deep recession is still forecast,” Mr Evans said.
The official June quarter growth figures are not due until September.
Economists at ANZ have also upgraded their growth forecast for the full 2020 year to a contraction of two per cent from minus 4.7 per cent previously, before rising by 1.8 per cent in 2021.
“The shutdown is response to COVID-19 was not as extensive, the health outcomes have been much better than initially feared, and the fiscal response has been material,” ANZ said in a note to clients.
However, the bank still expects the recovery to be slow, with no expectation of either economic growth or employment returning to pre-pandemic levels until 2022.
Prime Minister Scott Morrison gave an upbeat assessment in parliament on Wednesday.
“We will grow again,” Mr Morrison said, noting the start of trade deal talks with the UK.
“And we will look outward for that growth as well as inward as we reclaim those jobs that have been taken from Australians.”
Labour force figures for May will be released on Thursday, which economists expect could see the unemployment rate rise further to seven per cent, its highest level in 21 years.
The rate jumped to 6.2 per cent from 5.2 per cent in April, the biggest month-on-month rise on record as nearly 600,000 people lost their job in the face of the pandemic.
But Treasurer Josh Frydenberg pointed to Tuesday’s payrolls data released by the Australian Bureau of Statistics, which showed jobs had increased by one per cent through May.
“This is the start of the recovery that we’re seeing as the restrictions are eased, as a result of our country’s success in flattening the curve,” Mr Frydenberg told parliament.
The Reserve Bank of Australia’s minutes from its June 2 board meeting said the economy was experiencing the biggest contraction since the 1930s, albeit shallower than initially thought.
It said the outlook remained highly uncertain and the pandemic was likely to have long-lasting effects.