Coronavirus: IMF Australian economy predictions predate stimulus, lockdown, says Josh Frydenberg

The IMF’s dire economic outlook for Australia was formulated before the government’s major interventions, Treasurer argues.

Treasurer Josh Frydenberg responding to questions about the IMF’s predictions for the Australian economy at a press conference at Parliament House. Picture: Gary Ramage

Josh Frydenberg has criticised the IMF’s dire outlook for the Australian economy, accusing it of failing to account the impact of the government’s $130bn JobKeeper package as official figures showed millions of Australians have already received emergency financial support.

Treasury data shows the number of applicants for the wage subsidy program, which will be paid in the first week of May, has now surpassed 838,000, an increase of around 50,000 from late last week.

The Australian can also reveal that since March 31 over 6 million people on existing benefits have received the $750 one-off support payment, at a cost of over $4.5 billion. The second equivalent payment will start on July 13.

The government has also offered businesses $7000 subsidies per trainee or apprentice to encourage their retention, with the payment payable in this and the next quarter. As at 15 April, 3,559 apprentice claims from 2,418 employers had been processed with a total of $16.8 million paid so far.

The government has announced a temporary doubling of the JobSeeker payment, and an increase in the eligibility criteria, but officials said it was still unclear how many more Australians would take up the expanded dole given some would ne instead eligible for JobKeeper.

Despite the extraordinary government support – at 10 per cent of GDP the largest fiscal response in the world – the International Monetary Fund’s latest World Economic Outlook, released on Tuesday night, predicted Australia’s economy will be one of the hardest hit by the global health crisis.

Against the background of what the IMF said would be the worst year for the world economy since the Great Depression in the 1930s, Australia would suffer and economic contraction of 6.7 per cent this year – worse than the developed world average fall of 6.1 per cent – before rebounding by 6.1 per cent in 2021.

Notably, the IMF forecast the jobless rate will reach 7.6 per cent this year, before climbing to 8.9 per cent in the next, despite the expected economic recovery.

But the Treasurer on Wednesday morning said those predictions were out of date.

He argued that the IMF’s forecast for a lift in the jobless rate in 2021 was completed before the announcement of the $1500 a fortnight wage subsidy program, a measure which “will ensure many Australians remain in their jobs and won’t be joining the dole queue”.

Treasury officials expect JobKeeper will lower this year’s potential peak in unemployment from 15 per cent to 10 per cent.

Ahead of attending a meeting of G20 finance ministers central bankers on Wednesday night, Mr Frydenberg also said that at the time the IMF was putting together their figures the Australian “curve” tracing the rate of new COVID-19 cases was “heading in the wrong direction”.

“We were seeing an exponential increase in the number of infected people, but since that time we have bent that curve,” he said. “The success on the health side also helps determine the broader economic impacts.”

NAB chief economist Alan Oster on Wednesday said he expected the economy to contract by around 4.3 per cent in 2020, well shy of the IMF’s forecast drop in output.

While the IMF projected Australia would suffer more than many of its developed peers outside Europe, Mr Oster said his forecast “would put the economic hit to Australia a touch below that likely to be experienced by countries such as the USA, UK and Europe, but similar to Canada and Japan”.

Treasury economists have not issued an updated set of forecasts since their mid-year budget outlook released late last year.

With the May budget delayed to October 6, opposition treasury spokesman Jim Chalmers said the government “should be providing more comprehensive numbers”.

“In the next month or so the government should tell the Australian people what their own expectations are for employment, underemployment, growth, the impact on the budget of what we’re seeing during this crisis, and the [impact of] necessary steps which have been taken to respond to it,” Mr Chalmers said.