Business owners should prepare for the biggest drop in quarterly national output on record for the June quarter, as the economic consequences of the COVID-19 pandemic crush household consumption and business investment.
Treasury modelling cited by Treasurer Josh Frydenberg on Tuesday predicts Australia’s Gross Domestic Product (GDP) will fall by more than 10% in the June quarter, or by more than $50 billion.
That’s equivalent to the quarterly production of South Australia, Tasmania, the Northern Territory and the Australian Capital Territory.
In comments delivered to Parliament in lieu of the delayed federal budget, Frydenberg said the Australian economy will contract substantially before recovering on the back of coronavirus restrictions easing in July.
The full set of figures outlined by the Treasurer make for grisly reading. Unemployment is forecast to reach 10% in the June quarter as more than 1.4 million Australians find themselves unemployed, while household consumption is slated to fall 16% and business investment is predicted to plummet 18%.
Frydenberg said National Cabinet’s three-stage plan to lift coronavirus restrictions could bolster national output to the tune of $9.4 billion every month.
While state and territory governments are yet to finalise their timelines for easing restrictions, the Morrison government hopes to have the economy largely back up and running by July.
A prospective first wave of economic recovery on the back of cafes, pubs, clubs, entertainment venues, and health and fitness gymnasiums re-opening would contribute $2.4 billion a month to national output, the Treasurer said.
Meanwhile, allowing Australians to move around more freely could deliver a $2.9 billion boon to domestic demand, providing a much-needed boost to the retail sector.
The Treasurer’s comments come as pressure mounts on federal and state officials to balance health concerns associated with easing restrictions; Treasury modelling predicts any need to re-impose restrictions after they’re lifted could cost Australia $1.4 billion every day.
Much of the economic damage associated with the outbreak has already been done. National Australia Bank chief economist Alan Oster doesn’t think national output will recover until 2022, even amid expectations of a recovery in GDP later this year.
“While it is now likely that coronavirus containment measures could well ease earlier than expected, we expect this to be a gradual process. We also worry the hit to confidence will have some ongoing impacts to hiring and capex [capital expenditure], which could see a drag on growth for some time” Oster said in a statement on Monday.
The NAB Monthly Business Survey for April — a closely watched monthly index — showed a further weakening in conditions across the economy in the last week of April, with capacity utilisation now at its lowest level on record (down 9.2% on February).
Figures published by KPMG on Tuesday suggest it could take 18 months for Australia’s economy to recover from the outbreak, while Reserve Bank figures floated last week suggest economic output may not recover to December 2019 levels until early 2022.
“A plausible baseline scenario is that the various restrictions are progressively relaxed in coming months and are mostly removed by the end of September, except for some restrictions such as international travel. If this occurs, and the spread of the virus in Australia remains limited, GDP growth is likely to turn around in the September quarter and the recovery would strengthen from there,” the RBA said.