Australia’s central bank has predicted the country is facing its biggest economic contraction on record and says it is committed to support jobs and incomes as the government announced plans to relax pandemic-related restrictions by July.
In its quarterly statement on monetary policy, the Reserve Bank of Australia (RBA) forecast the $2 trillion economy would shrink by 10 per cent in the first half of the year, marking the first recession in three decades.
Australia saw a rapid spike in the number of COVID-19 cases from less than 100 in March to over 6,900 now.
In a bid to contain the spread, it closed borders and announced strict mobility and “social distancing” restrictions, prompting many businesses to close down and announce massive job losses.
To support activity, the RBA cut interest rates twice in March to a record low 0.25 per cent and launched an unlimited quantitative easing programme to keep borrowing costs low for banks and consumers.
The federal government, which says the shutdowns are costing the economy $4 billion a week, is also splashing out billions of dollars in cash to support growth and jobs.
Despite the aggressive monetary and fiscal support measures, the RBA expects the unemployment rate to hit 10 per cent by June and remain around 7.5 per cent through 2021.
It expects the economy to contract by 6 per cent this year.
The inflation rate is expected to turn negative in the June quarter before turning mildly positive by year-end.
The RBA said the speed and timing of the economic recovery is very uncertain beyond the next few months.
Governor Philip Lowe said it was “possible to contemplate an upside scenario where most domestic restrictions on activity are relaxed a little sooner and the economy recovers somewhat faster than in the baseline scenario.”
With fewer than 20 new infections reported each day, Prime Minister Scott Morrison on Friday announced a three-stage plan to fully reopen the economy by July if the virus remains contained.