While the Reserve Bank did decide against a rate change on Tuesday, governor Philip Lowe painted a very grim picture of the economy, with recovery now expected to be “uneven and bumpy” due to Victoria’s setback.
According to the governor, the economy is now forecast to contract by 6 per cent this year. However, it is still predicted to bounce back in 2021 with growth of 5 per cent.
RBA’s base forecast also puts the unemployment rate at around 10 per cent later in 2020 due to further job losses in Victoria. Over the following couple of years, the unemployment rate is expected to decline gradually to around 7 per cent.
“It is likely that fiscal and monetary stimulus will be required for some time given the outlook for the economy and the labour market,” Mr Lowe said.
The IMF had a similar message overnight. In its latest external sector report on the COVID-19 crisis, compiled prior to Victoria’s outbreak, the fund nevertheless urged Aussie authorities to “stand ready”.
“The recent substantial monetary policy easing and fiscal stimulus are appropriate to support the economy, which has significantly weakened due to the COVID-19 outbreak,” the IMF’s report reads.
“The authorities should stand ready to provide additional stimulus if necessary, and particularly in case of a renewed COVID-19 outbreak.”
Whether the government will heed these calls remains to be seen, but Treasurer Josh Frydenberg has admitted that the government is looking at the JobKeeper 2.0 eligibility issues in light of the situation in Victoria.
Not wanting to reveal how much the Victorian restrictions are expected to cost the economy, Mr Frydenberg hinted that an update may be unlikely before the October budget.
“We’ll provide an update in the October budget, or beforehand, as Treasury work through those numbers, but clearly the impact on the Victorian economy, which makes up a quarter of the national economy, will be very significant,” the Treasurer told Sky News.
According to estimates by KPMG, stage 4 restriction could see Victoria lose $830 million in output in August alone, and another 130,000 employees due to their inability to work from home.
