The IMF predicts that Australia’s economy will bounce back sharply, but former prime minister Kevin Rudd believes the worst is yet to come.
Australia’s GDP will shrink by a massive 6.7 per cent in 2020, with a potential rebound of 6.1 per cent in 2021 restoring hope for the “V-shaped” recovery that many economists were predicting before the full impact of the global lockdown became clear.
Treasurer Josh Frydenberg welcomed the report, saying Australia was approaching the crisis “from a position of economic strength”.
“The IMF is forecasting Australia to grow by 6.1 per cent in 2021, faster than the economies of the United States, Canada, Japan, France, Germany and the United Kingdom,” Mr Frydenberg said.
But the prediction of a “V-shaped” recovery has been disputed by former prime minister Rudd, who says that it is based on best-case scenarios.
“How long do we maintain lockdown, how long do we maintain social distancing, and how long do we maintain quarantine?” Mr Rudd said on ABC Radio.
“That’s the huge variable on all of this, and if you read carefully in the fine print of the IMF report, its 2021 rebound projections are very much conditional on that.”
Mr Rudd, who recently joined an IMF advisory board, believes that the recovery is more likely to be “U-shaped” or even “W-shaped”, with “fluctuations in public health recovery and public economic recovery” requiring policy measures to be updated constantly.
“Measures on the fiscal side, covering the demand gap, are good and important,” Mr Rudd said.
“Monetary policy measures are important as well. But frankly, preventing this crisis from metastasising into a financial crisis is a core challenge for policymakers around the world at present.”
The IMF is still predicting the worst global recession in almost a hundred years amidst massive output losses and ongoing economic uncertainty.
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” said IMF chief economist Gita Gopinath.
“A partial recovery is projected for 2021, with above-trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound. Much worse growth outcomes are possible and maybe even likely.”