Treasury has warned that its economic update might already be outdated as cases continue to climb in Victoria and other states lock their doors.
Treasurer Josh Frydenberg’s “eye-watering” economic update warned that the budget deficit will rise to $85.8 billion in 2019-20 and $184.5 billion in 2020-21, while unemployment was set to rise to 9.25 per cent. But barely a week on, Treasury Secretary Steven Kennedy has told the Senate COVID committee that the outlook has changed for the worse.
“Even since we put this update to government, things have deteriorated in a major state,” Mr Kennedy said, adding that the constraints imposed – including border restrictions in [Qld] and continuing lockdowns in Victoria – will mean “growth will be lower, employment will be lower and unemployment will be higher”.
“People can lose confidence and have concerns about what they’re seeing unfolding, even in other parts of the country,” Mr Kennedy said. “The community having confidence in the virus being well managed will matter enormously for economic activity,” he said.
Mr Kennedy warned that activity and employment would likely remain below pre-COVID levels for at least the next 12 months.
“This shock is far from over,” Mr Kennedy said. “This is obvious to Australians living in Victoria. We are learning more about the management of COVID-19 but there remains considerable uncertainty about the progression of the virus and its full impact on the economy.”
The Treasurer’s update took an unusually rosy view of the economic situation, assuming a sharp end to Victoria’s renewed lockdown and that structural headwinds – including rising geopolitical tension – would have a limited impact on the recovery.
“Our economy has taken a big hit, and there are many challenges we confront,” Treasurer Frydenberg said. “We can see the mountain ahead and Australia begins the climb. We must remain strong. We must draw strength from our resilience as a nation and a people. And we will get through this, and we will get through this together.”
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