Coronavirus Australia: worst year since Great Depression, says IMF

The ‘Great Lockdown’ to fight COVID-19 will cost the world $US9 trillion and trigger a decline 30 times greater than during the GFC.

Scott Morrison in question time last week. Picture: AAP

The “Great Lockdown” to fight COVID-19 will cost the world economy $US9 trillion and trigger a decline in global output 30 times greater than during the global financial crisis, according to International Monetary Fund predictions for the worst year since the Great Depression.

The fund’s World Economic Outlook forecasts global GDP dropping 3 per cent this year — eclipsing the 0.1 per cent reduction in annual output as a result of the GFC — with Australia’s economy contracting by a hefty 6.7 per cent in 2020 before heading into ­recovery.

IMF chief economist Gita ­Gopinath branded the pandemic a crisis “like no other” — income per capita is projected to shrink in more than 170 countries — but argued that shrinking global growth was “to a large extent the consequence of needed containment measures”.

“This is a truly global crisis as no country is spared,” she said. “This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the global financial crisis.”

The latest World Economic Outlook, released on Tuesday night, estimated the cumulative loss to global GDP over this year and next from the pandemic to be about $US9 trillion ($14.1 trillion): greater than the economies of Japan and Germany combined.

The predicted damage to Australia’s economy comes despite IMF data showing the Morrison government unleashing the largest direct fiscal response among developed countries — equivalent to 10 per cent of GDP.

The IMF’s team of economists expected a “partial” recovery in 2021 and, in the case of Australia, a 6.1 per cent rebound in GDP but warned a protracted battle with the coronavirus would extend the economic damage.

Scott Morrison said on Tuesday that Australia was now “in a good position to be able to deal with what is a global calamity” but added it was imperative the nation “not become complacent because of our relative success”.

“I mean, we don’t want to end up like New York or like London, or like in Spain or in Italy or any of these places,” the Prime Minister told Sky News.

 

If the pandemic does not recede in the second half of this year, leading to longer shutdowns, the IMF warned that global GDP would fall even further, including an additional three percentage points in 2020. Should the pandemic continue into 2021, the world economy may fall by an additional 8 per cent next year compared with the IMF’s baseline scenario.

Ms Gopinath warned that much worse growth outcomes were possible and “maybe even likely”.

Responding to the dire global outlook, Josh Frydenberg said the IMF forecasts suggested Australia was set for a stronger economic rebound next year than a range of its developed country peers.

The Treasurer said Australia “approaches this crisis from a position of economic strength”.

“The federal budget returned to balance for the first time in 11 years and Australia’s debt to GDP is about a quarter of what it is in the United States or United Kingdom, and about one-seventh of what it is in Japan,” Mr Frydenberg said.

 

The IMF expects developed economies as a whole will shrink by 6.1 per cent this year, and emerging countries by 1 per cent. The Euro area, where the initial Chinese COVID-19 epidemic gained its first international foothold, will suffer a 7.5 per cent contraction. This is the steepest decline in output forecast for the advanced world.

Struggling to control the spread of the virus and saddled with the greatest number of deaths from the health crisis, the US is on track to experience a 5.7 per cent decline in total output, according to the IMF’s figures.

The number of confirmed cases of the new coronavirus has passed the two million mark worldwide and officials in countries struggling through the health crisis have turned to plotting their exit strategies from the extraordinary restrictions.

Mr Morrison said the national cabinet would on Thursday discuss what prerequisites Australia had to meet before removing any social-distancing measures.

 

“If you take your eyes off of this thing, and it gets away from you, it writes its own rules,” the Prime Minister told Seven’s Sunrise. “We have looked at the experiences of other countries and so we are hopeful that at some point, we can move from the phase we are currently in to a new phase. But I do want to caution Australians that we’re not in that phase yet; we’re many weeks away.”

The IMF said countries needed to urgently “work together to slow the spread of the virus” and “develop a vaccine and therapies to counter the disease”.

“Until such medical interventions become available, no country is safe from the pandemic (including a recurrence after the initial wave subsides) as long as transmission occurs elsewhere,” it said.

 

The IMF’s forecasts came as NAB’s business survey on Tuesday showed the health crisis and associated shutdowns had triggered a record collapse in corporate confidence in March.

With the number of applicants for the JobKeeper program pushing past 800,000, Mr Morrison described Treasury projections that unemployment would rise to 10 per cent in coming months as “heartbreaking”.

The latest update on the jobless figures will be released on Thursday amid debate about how to balance the economic cost of shutdown measures against their health benefits.

 

Australia’s success at suppressing the spread of new infections is receiving international attention. Analysis by AMP Capital suggests Australia has the third-best containment record in the world, behind China and South Korea, and ahead of Canada, Russia and Germany.

The United States ranks 23rd of the 30 countries analysed, just behind Italy.