Australia's GDP To Decline Most On Record: RBA

The Australian economy is set to log its biggest contraction in the history due to the coronavirus, or Covid-19, pandemic, the Reserve Bank of Australia said Friday.

In its quarterly Statement on Monetary Policy, the central bank said gross domestic product is expected to contract around 10 percent over the first half of 2020, mostly concentrated in the June quarter. The decline in the June quarter will be the biggest on record, the bank noted.

In order to combat the downturn caused by the pandemic, the bank had reduced its key interest rate to 0.25 percent and unveiled a quantitative easing programme in March.

Despite monetary and fiscal easing, the bank sees a sharp increase in the unemployment rate to around 10 percent, the highest since 1994.

Due to falling oil prices, headline inflation is expected to fall by around 2.25 percent in the June quarter and headline inflation is expected to be negative in year-ended terms for the first time since the early 1960s.

The bank said the outlook beyond the June quarter is uncertain as the recovery depends on how long social distancing measures remain in place.

The economy is forecast to rebound 7 percent in the year ending June 2021 and expand 5 percent in 2022.

Headline inflation is forecast to rise to 2.75 percent in the year ending June 2021 but to slow to 1.5 percent in June 2022.

Like other major central banks, RBA also considered different scenarios for the domestic recovery based on a range of plausible health outcomes and the associated policy responses.

The bank said the outcomes for GDP growth, unemployment and inflation in the ‘gradual recovery’ baseline scenario were broadly in line with the average market forecasts for these variables in 2020 and 2021.

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