NAB’s World on Two Pages: April 2020

The global economy is in a deep recession due to the rapid and widespread escalation in Covid-19 containment measures since mid-March. While the domestic economy is now expected to see a contraction of an unprecedented speed and magnitude.

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Global

The global economy is in a deep recession due to the rapid and widespread escalation in Covid-19 containment measures since mid-March. While the driver of this recession is different to previous episodes, some of the longer-term consequences will be similar. Many businesses that have been forced to shut down will not re-open and the extra debt that households and businesses are being forced to take-on to address a severe cashflow squeeze will have to be worked off over time. As a result, activity is unlikely to return to its pre-virus trajectory for a while to come. The timing and strength of the recovery will depend on when, and to what extent, containment measures are eased. China was the first country to implement severe restrictions and has already eased restrictions. While some other countries are now flagging an easing, others are still debating whether to escalate measures further – so it is not clear that we are yet at peak containment globally.

This month we recorded a podcast to accompany the Forward View – Global, giving you a 10 minute summary of our key forecasts.

Australia

We have significantly downgraded our forecasts since mid-March. The domestic economy is now expected to see a contraction of an unprecedented speed and magnitude. GDP is expected to decline by around 8% in the first three quarters of 2020, before growth recovers in 2021. It is important to note the level of activity is not expected to be fully recovered until early 2022. Given the nature of coronavirus containment measures and the magnitude of the downturn, we will also see a significant deterioration in the labour market. The unemployment rate is expected to rise sharply and quickly to 11.7% in the next few months and stay there until the end of the year. With the recovery in growth from Q4 the unemployment rate is expected to partially recover in 2021 – but remain above 7% by end-2021. Policy makers have responded quickly and significantly, but this will be unlikely to offset the extent of the pain in the near-term. However, it will help significantly in the recovery phase. There are likely to be implications for wage growth and inflation growth with the build-up of spare capacity in the economy, meaning rates will remain at very low levels for an extended period. There are also risks to specific sectors such as an ongoing adjustment in commercial property and a delayed recovery in tourism and education sectors will lower exports with non-resident movements likely to be restricted for some time. While official data are lagged and yet to show signs of the coronavirus impact, the NAB Monthly business survey showed a collapse in both confidence and conditions in March.

This month we recorded a podcast to accompany the Forward View – Australia, giving you a 10 minute summary of our key forecasts.

Find out more in NAB’s World on Two Pages April 2020