Australia Unemployment Could Hit 12% in Fastest Slump Since WWII

Michael Heath

(Bloomberg) -- Australia’s jobless rate could soar to around 12% and the economy contract 5% in the second quarter -- and a further fall in the three months after that would bring the fastest decline in activity since World War II, according to National Australia Bank Ltd.

“The nature of this shock is of course very different to traditional recessions -- in particular, there is hardly any lag between falling output and employment,” Alan Oster, chief economist at NAB, said in a research note Friday. He estimates gross domestic product would contract by 3% in 2020, but rebound to 3.5% the following year.

Unemployment is likely to prove more stubborn, soaring to 12% and holding there until year-end. Even with a sharp growth recovery in 2021, Oster expects the unemployment rate to still have a “7” as its first digit.

Australia’s central bank and government have rolled out the stimulus firehose, with Prime Minister Scott Morrison pledging about A$80 billion ($49 billion) in fiscal measures and the Reserve Bank cutting interest rates to near zero and lower borrowing costs across the economy.

Measures taken to halt the spread of the coronavirus are inevitably damaging the economy. The stimulus in place should allow activity to bounce back in the recovery phase, but it’s not without risks, Oster said.

“While policy is highly stimulatory and will support recovery, persistently weak business and consumer confidence could see ongoing restraint and a slower recovery,” he said. “Adjustments to household and business balance sheets” could also weigh on growth, he added.

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