Reserve Bank of Australia warns of ‘biggest contraction since 1930s’ due to covid-19

Reserve Bank of Australia Governor Philip Lowe has warned of “difficult days ahead” for the Australian economy as the coronavirus crisis rages on.

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Dr Lowe has given a grim prediction for the coming months, warning of “difficult days ahead”.

Lowe fronted the media this afternoon to provide an update on the RBA’s economic outlook and the implementation of its coronavirus policy package announced a month ago.

But he said while it was clear “we will face some difficult days ahead” due to social distancing restrictions and general uncertainty, the Australian economy would recover once the virus was contained.ADVERTISEMENT

“In terms of the immediate outlook, the next few months are going to be very difficult ones for the Australian economy,” he said.

“So the result of both the restrictions and this uncertainty is that over the first half of 2020, we are likely to experience the biggest contraction in national output and national income that we have witnessed since the 1930s.

He said it was difficult to predict the magnitude of that contraction, but that the RBA expected national output to fall by around 10 per cent over the first half of 2020 with most of this decline occurring in the June quarter.

“The unemployment rate is likely to be around 10 per cent by June, although I’m hopeful that it might be lower than this if businesses are able to retain their employees on lower hours,” he said.

“These are all very large numbers and ones that were inconceivable just a month or two ago.

“In terms of inflation, we are also expecting a significant decline in the June quarter. The large fall in oil prices, combined with the introduction of free child care, and the referral or reduction in some price increases means that it is quite likely that year-ended headline inflation will turn negative in the June quarter. If so, this will be a first time since the early 1960s where the price level has fallen over a full year.”