SYDNEY — Australia faces a 10% economic contraction in the March quarter as shockwaves from the coronavirus pandemic rip through the economy, the head of the Commonwealth Bank of Australia, the country’s largest lender, warned on Monday.
Citing data from the bank’s live payments system, CBA chief executive Matt Comyn said consumption has fallen heavily in recent weeks as widespread restrictions on the movement of people have hit demand.
“Probably a base case for the March quarter would be something in the order of a 10% contraction in the economy,” Comyn said in a video conference hosted by the Australian Financial Review on Monday.
Comyn said a week or so ago he would have probably estimated a contraction of 5% to 6%.
Australia has rolled out increasingly restrictive measures to combat the spread of coronavirus. Around 4,200 people have tested positive nationally, and the death toll stands at 18.
The A$2 trillion ($1.2 trillion) economy has dodged a recession since the early 1990s but surging unemployment and higher loan losses are likely to cripple growth in what could be the country’s steepest economic downturn.
More than 100,000 Australian workers have already been stood down as retailers and restaurants shut shop, leading to ever longer queues outside the country’s welfare office.
Australia’s biggest banks are watching the impacts play out as they offer deferral periods on loans to beleaguered industries and consumers.
When asked if Australia’s economic contraction in the June quarter could be in the order of 25% as some predict for the U.S. economy, Comyn said it was “certainly possible.”
“Of course, I hope it does not come to that. And I think that is why the government has and will continue to put in place very substantial measures to enable businesses to stay intact.”
Australia is battening down the hatches to prevent a scarring economic crisis, with the country’s central bank take a foray into quantitative easing after reducing interest rates to a record low of 0.25%.
The government has also rolled out three fiscal stimulus packages totaling A$320 billion, with the latest on Monday offering “job keeper” payments to companies to help them keep people employed.
Economists, in general, are predicting Australia’s unemployment rate will soar above 11% by June and annual economic output will shrink by 3% in 2020.
The most recent data showed Australia’s economy expanding by 2.2% in the December quarter from a year earlier, while the jobless rate fell to 5.1% in February.
(Reporting by Swati Pandey and Paulina Duran; editing by Richard Pullin)