Coronavirus pandemic set to shrink Australian economy in Q1, worse yet to come

SYDNEY: Australia’s economy is expected to have shrunk in the first quarter as the global coronavirus pandemic is set to tip the country into its first recession in three decades.

Annual growth likely slowed to 1.4% from 2.2% in 2019, the survey showed.

If the economy contracts in both the March and June quarters it would be Australia’s first technical recession since the early 1990s.

A Reuters poll of 15 economists forecast the A$2 trillion economy to contract by 0.3% in the three months to March - the first quarterly decline in nine years.

The economic fallout deepened in Australia as the number of local coronavirus cases surged from less than 100 in early March to more than 7,000 now, forcing the government to shut borders and restrict large gatherings.

The country’s central bank stepped in by cutting the cash rate to a record low 0.25% and launching an unlimited bond buying programme. It is widely expected to sit tight at its monthly policy meeting on Tuesday.

Some economists see a small chance of a positive Q1, partly thanks to a run at supermarkets and solid export demand.

“That means Australia might escape ‘technical’ recession. Again,” said Deutsche Bank economist Phil Odonaghoe forecasting a 0.1% growth in March quarter.

“Risks to our outlook are to the downside.”

Even before the coronavirus-related mobility restrictions kicked in, Australia’s economy was struggling from a devastating bushfire season, a slowdown in tourism and weak domestic demand.

“A significant contraction in 2Q is looming,” Bank of America-Merrill-Lynch analysts wrote in a note. “Looking ahead, we do not expect a strong rebound in growth into 2021.”

“We expect some of the lost output will not be recovered... Hence, there is risk for unemployment to rise by the end of the year.”