The nation is set to experience the biggest decline in output and incomes since the Great Depression despite the massive measures taken to limit the economic shock from the COVID-19 outbreak, Reserve Bank of Australia governor Philip Lowe has warned.
In a sobering update on the economic outlook, Mr Lowe said gross domestic product was likely to fall by 10 per cent in the first half of the year while total hours worked would plunge 20 per cent, income would shrink and the unemployment rate would climb to around 10 per cent by June as social restrictions and high uncertainty cramp activity.
"The result of both the restrictions and the uncertainty is that over the first half of 2020 we are likely to experience the biggest contraction in national output and income that we have witnessed since the 1930s," the governor said.
The Reserve Bank's assessment echoes Treasury forecasts for a 10 per cent jobless rate and follows International Monetary Fund projections for a global recession this year before a rebound in 2021.
Adding to the troubling outlook, Mr Lowe said the collapse in global oil prices, the temporary introduction of free childcare and the deferral or reduction of some price rises would force headline inflation would "turn negative in June [for the] first time since the early 1960s".
The central bank governor warned people to brace for "many reports of record declines in economic activity" over coming months.
His warning of a sustained slide in incomes came as the Australian Bureau of Statistics released a study of payroll data showing total wages tumbled 6.7 per cent in the three weeks to April 4.
Mr Lowe reiterated his view that official interest rates would remain at current record low levels "for years".
"We are going to have to have low interest rates for a very long period of time," he said.
But despite the dire short-term outlook, Mr Lowe said that if current restrictions could be progressively eased in the next two or three months the economy would begin to "bounce back" from the September quarter.
"If this is how things play out, the economy could be expected to grow very strongly next year, with GDP growth of perhaps six to seven per cent," he said.
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