SYDNEY, Aug 7 – Australia’s economic recovery will be slower than hoped and unemployment will stay high for several years even though the contraction driven by the COVID-19 pandemic has been less severe than forecast, a senior central bank official said on Friday.
A surge in the number of coronavirus cases in Australia’s second-most populous state of Victoria since June has worsened the country’s broader economic outlook, Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis said during a webcast.
“We now think that even though the initial contraction was smaller, the subsequent recovery is likely to be more protracted and progress on reducing unemployment will be slower,” Ellis said in a speech titled “The Economic Outlook”.
“The recovery is expected to be slow and uneven, and GDP will probably take several years to return to the trend path expected prior to the virus outbreak.”
The dour outlook means the RBA would maintain its “accommodative approach” for as long as required, after slashing interest rates to a record low of 0.25% in an emergency meeting in March.
Australia has dodged a technical recession, defined by two consecutive quarters of contraction, since the early 1990s having come out of the 2008/09 global financial crisis relatively unscathed.
But it is now facing its deepest contraction in about a century, with the RBA’s baseline scenario showing output would fall by 6% over 2020 – an “enormous shock” to the labour market, Ellis said.
“We expect that employment and total hours worked will decline over the next few months, partly because of the increased activity restrictions in Victoria,” Ellis said.
Victoria’s capital of Melbourne entered a six-week total lockdown on Thursday, shuttering shops and businesses and requiring its five million inhabitants to stay home to curb the spread of the novel coronavirus. (Reporting by Swati Pandey;)