Australia’s central bank on Friday predicted the country is facing its biggest economic contraction on record and said it was committed to support jobs and incomes as the government announced plans to relax pandemic-related restrictions by July, Trend reports citing Reuters.
In its quarterly statement on monetary policy, the Reserve Bank of Australia (RBA) forecast the A$2 trillion ($1.3 trillion) economy would shrink by 10% 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 its borders and announced strict mobility and “social distancing” restrictions, prompting many businesses to close down and announce massive layoffs.
To support activity, the RBA cut interest rates to a record low 0.25% in an emergency meeting in March and launched an unlimited quantitative easing programme to keep borrowing costs low for banks and consumers.
The government, which has lamented the shutdowns were costing the economy A$4 billion ($2.62 billion) a week, is also splashing out billions of dollars in cash to support growth and jobs.
However, despite the aggressive monetary and fiscal support measures, the RBA expects the unemployment rate to hit 10% by June and remain around 7.5% through 2021. 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.
Indeed, Australia’s banks have deferred payments on at least A$200 billion ($130.12 billion) in loans, reflecting the economic hit being felt by businesses and individuals, the country’s banking body said on Friday.
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, Australia’s Prime Minister Scott Morrison on Friday announced a three-stage plan to fully reopen the economy by July if the virus remains contained.
“This is a complex and very uncertain environment,” Morrison said in a press conference. “But we cannot allow our fear of going backwards from stopping us from going forwards.
“This is the plan for a COVID-safe Australia,” he said holding up a flyer with the three steps. “This will get us back where we need to be, as quickly as we can.”