Australia GDP to fall 5 per cent amid economic fallout due to coronavirus

A leading global economic body has called on the Morrison Government to extend stimulus packages past the September expiration date.

Australia is grappling with its first recession in decades but a second wave of coronavirus infections would drag its economy even lower and land a severe blow to the nation’s employment rate, a leading economic body warns.

Its GDP is forecast to fall by 5 per cent this year but the Organisation for Economic Co-operation and Development says a climb in cases as the country eases restrictions would stretch that to 6.3 per cent.

RELATED: World on brink of ‘enormous shock’

The international body credited the Morrison Government’s JobKeeper and other stimulus measures for containing the economic shock during the lockdown but said fiscal support mechanisms needed to be extended past the September expiry date.

This includes expanded loan guarantees once the banks’ mortgage holiday ends.

“The scarring effects of unemployment – especially for young workers – should be alleviated through education and training, as well as enhancing job search programs,” the OECD outlook said.

“The authorities should be considering further stimulus that may be needed once existing measures expire at the end of the third quarter 2020.

“Such support should focus on improving resilience and social and physical infrastructure, including strengthening the social safety net and investing in energy efficiency and social housing.”

Unemployment rose sharply during the pandemic.

The OECD said Australia’s recovery was leading the way in the developed world but said it had ample fiscal space to splash on bolstering that return to normality post-pandemic.

Unemployment has fallen to 6.2 per cent but a concerning participation rate and the reliance on both JobSeeker and JobKeeper means this is likely to rise sharply again towards the end of the year.

The economic recovery would rely on a return to consumer sentiment once shoppers can go out and about, though high levels of household debt and a weakening in house prices could provide headwinds.

And it’s not just economists calling for the extension of income support, with a recent survey by comparison site Finder revealing nearly 60 per cent of Australians are concerned they won’t be able to afford day-to-day expenses when stimulus is turned off.

The survey also found nearly 70 per cent fear a second wave of infections, the greatest concern among respondents.

Retail, hospitality and the entertainment sectors have been the worst hit. Picture: Bianca De Marchi/AAP

DEEPEST RECESSION SINCE WWII

Earlier this week, the World Bank warned the pandemic will see the global economy plunge into its deepest recession since WWII, forcing “many millions” more into extreme poverty, according to its latest economic outlook.

Global output will shrink by 5.2 per cent in 2020, economic activity among advanced economies is expected to shrink 7 per cent, and emerging economies will contract by 2.5 per cent – the steepest fall in 60 years.

This is a direct result of the COVID-19 pandemic, which just saw a record new high in daily cases.

“COVID-19 has delivered an enormous global shock, leading to steep recessions in many countries,” the report said. “The baseline forecast envisions a 5.2 per cent contraction in global GDP in 2020 – the deepest global recession in decades.

“Per capita incomes in most emerging and developing economies will shrink this year.

“The pandemic highlights the urgent need for policy action to cushion its consequences, protect vulnerable populations, and improve countries’ capacity to cope with similar future events.”

The grim forecast comes as Australia enters its first recession in close to three decades.

The Reserve Bank predicts our economy will contract by 6 per cent in 2020, with World Bank economists saying that under a worst-case scenario global GDP could shrink by almost 8 per cent.