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Governor delivers sombre economic outlook, predicts loss of businesses

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
21 April 2020 1 minute readShare

The unemployment rate is likely to remain above 6 per cent over the next couple of years, the Reserve Bank Governor said in a speech on Tuesday, warning that we can expect to “lose some businesses” in the months ahead.

According to Governor Philip Lowe the twin health and economic emergencies that we are experiencing now will cast a shadow over our economy for some time to come, requiring companies to rethink their business models in order to adapt.

While delivering a sombre outlook for Australia’s economy, the Governor explained that it is highly probable that the severe shocks we are now experiencing will change mindsets. As such, he opined, “we should not be expecting that we will return quickly to business as usual.”

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“Even after the restrictions are lifted, it is likely that some of the precautionary behaviour will persist. And in the months ahead, we are likely to lose some businesses, despite best efforts, and some of these businesses will not reopen.

“There will also be a higher level of debt and some households might revaluate the risks of having highly leveraged balance sheets,” Mr Lowe said, adding that structural changes to the economy are probable.

 

The best way of dealing with the reverberations through our economy is to reinvigorate the country's growth and productivity agenda, the Governor explained, adding that there is an opportunity “to build on the cooperative spirit”.

“A strong focus on making Australia a great place for businesses to expand, invest, innovate and hire people is the best way of extending the recovery into a new period of strong and sustainable growth and rising living standards for all Australians.”

Referencing economic data, Mr Lowe predicted that year-ended headline inflation will turn negative in June, marking the first time since the early 1960s that the price level has fallen over a full year. In underlying terms, however, inflation is expected to remain positive.

As for unemployment, Mr Lowe said it will finish at around 10 per cent at end-June, and will likely remain above 6 per cent over the next couple of years.

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However, he noted, if restrictions were to be lifted more quickly, with the virus being contained, economic recovery could be more robust with GDP growth of perhaps 6–7 per cent in 2021, following a drop of 6 per cent this year.

“As Australians digest this economic news, I would ask that we keep in mind that this period will pass, and that a bridge has been built to get us to the other side."

That bridge, according to Mr Lowe, has been partly built with the help of Australia's strong balance sheets – in particular, the strong balance sheets of the governments, private banks and of the Reserve Bank.

"With the help of that bridge, we will recover and the economy will grow strongly again,” Mr Lowe concluded. 

Governor delivers sombre economic outlook, predicts loss of businesses
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe. 

You can email Maja on maja.djurd[email protected] 

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