Australia Out of the Recession Frying Pan & Into the Debt Fire - IMF
(14 October 2020 – Australia) The International Monetary Fund (IMF) believes Australia’s COVID-19 immediate recession will not be as challenging as originally expected however the recovery will be elongated due to rising sovereign debt and unemployment.
The IMF forecasts the Australian economy to contract by four percent in 2020 before bouncing back and expanding by three percent in 2021. The forecasts are a marked improvement on what the IMF was expecting in Q2 2020 during wide scale lock down restrictions, originally predicting the economy to shrink by 6.7 percent before growing by a more robust 6.1 percent. Subdued growth translates into a greater national debt burden. Before the COVID-19 pandemic, Australia's government debt stood at 46.3 percent of GDP. By 2025, Australian debt is expected to surpass 70.9 percent of GDP. The improved growth outlook translates into a stronger unemployment outlook, rising to 6.9 percent in 2020 and then 7.7 percent through 2021 instead of as a high as 8.9 percent in 2021 as originally expected.
While the IMF admits its forecasts could be too pessimistic if there is a vaccine breakthrough or health therapies limited the spread of the coronavirus, it warned that the economic outlook could be even worse if there are further outbreaks, natural disasters, governments withdrew support too quickly or a surge in business failures occurs.
“All countries must maintain spending throughout the pandemic which is only likely to abate once a safe and effective vaccine is available. The ascent out of this calamity is likely to be long, uneven, and highly uncertain. It is essential that fiscal and monetary policy support are not prematurely withdrawn, as best possible” said IMF Economic Counsellor Gita Gopinath
“The government's recovery plan is focused on encouraging businesses to start spending money now to support the jobs market” stated Prime Minister Scott Morrison.