Australia’s central bank boss predicts the economy will be on its way to recovery by September if coronavirus restrictions begin lifting soon.
But Reserve Bank of Australia governor Philip Lowe says the shadow of the crisis will loom over the country for a long time yet, with the shock permanently changing people and business mindsets.
And nearly 850,000 Australians are likely to be out of work for some years to come, predicting unemployment will stay above six per cent through a long, slow recovery.
Australian Bureau of Statistics figures released on Tuesday show the number of jobs in Australia dropped by six per cent over March.
Food and accommodation businesses shed a quarter of their workers while the arts and entertainment sector dropped nearly one in five jobs.
The RBA is working on scenarios based on how long restrictions stay in place to slow the spread of the virus.
It forecasts the economy will contract by about 10 per cent over the first half of 2020.
Total hours worked are expected to plunge by 20 per cent and the unemployment rate to rise to 10 per cent – double its pre-crisis level.
“These are all very large numbers and ones that were inconceivable just a few months ago,” Dr Lowe told reporters.
“They speak to the immense challenge faced by our society to contain the virus.”
If restrictions start to ease mid-year and are mostly gone by the end of the year, the RBA expects a recovery to start in the September quarter.
In that scenario, GDP might end 2020 having fallen around six per cent, and would rebound strongly with growth of about six or seven per cent in 2021.
This is in line with the International Monetary Fund’s outlook for Australia.
Longer restrictions would lead to a “delayed and interrupted” recovery.
The nation’s leaders are already looking at easing restrictions on travel and business closures from mid-May.
But they say there must be more testing and tracing capacity and a very low rate of infections for that to happen.
Dr Lowe says people and businesses will be more cautious and more in debt on the other side.
There are also likely to be structural changes to the economy after months of learning to shop, work and travel differently.
“Some of these changes will probably stay with us, requiring a rethinking of business models,” he said.
“So the crisis will have reverberations through our economy for some time to come.”
He wants governments to reinvigorate Australia’s growth and productivity agenda.
This should include fresh looks at income and land taxes, building infrastructure, training workers, regulations, and a revamp of industrial relations.
The Morrison government has flagged tax cuts and aggressive deregulation as part of a pro-business path guiding its October budget.
Finance Minister Mathias Cormann says the government – like the RBA – wants to encourage businesses to invest and employ workers when the economy reopens.
“We will be presenting our plan based on lower taxes and aggressive deregulation agenda,” he said.
Senator Cormann refused to say whether wide-scale company tax cuts, which were shelved under the Turnbull government, would be revived.
Labor leader Anthony Albanese said the government’s approach was based on right-wing ideology.
“What we have is the government foreshadowing that they’re coming after workers’ wages and conditions as soon as this crisis is over,” he told reporters in Sydney.
He said the government would have learned nothing if it withdrew support and relied on letting markets rip unfettered by proper regulation after the crisis.