The RBA still expects the economy to take a hit of 10 per cent to GDP, primarily in the June quarter, but has flagged a scenario which would see life – and the economy – return to normal much faster.
“Given the relatively rapid decline in the number of new COVID-19 cases in Australia, it is possible to contemplate an upside scenario where most domestic restrictions on activity are relaxed a little sooner and the economy recovers somewhat faster than in the baseline scenario,” the RBA wrote in its Statement on Monetary Policy. “The greater [the] public confidence in positive health outcomes, the more likely it is that the easing in restrictions on activity spurs a recovery in spending; better health outcomes elsewhere in the world would reinforce this positive dynamic.”
In that scenario, unemployment would be at 5 per cent “in a couple of years” and GDP growth would be closer to that forecast in the February Statement on Monetary Policy – GDP growth of 3 per cent over 2021. The RBA’s base case is still for a progressive lifting of restrictions in September (save some restrictions on international travel) with GDP likely to turn around in the September quarter and the recovery to strengthen from there.
The RBA still anticipates employment to fall by 8 per cent in June – approximately 1 million workers – with unemployment set to increase to around 10 per cent. That would put unemployment at its highest level since 1994 – but a potential second wave of cases could make it worse.
“Alternatively, if the lifting of restrictions is delayed or the restrictions need to be reimposed or household and business confidence remains low, the outcomes would be even more challenging than those in the baseline scenario,” the RBA said. “The unemployment rate would drift down much more gradually and the level of output would remain around its trough for several quarters and recover only slowly.
“A longer downturn would involve more job losses and business failures, and therefore more lasting damage to economic performance.”
