“The outlook is reliant on assumptions about the path of the virus, the policy response and, more broadly, human behaviour,” wrote Macquarie Group economist Ric Deverell, who predicts the economy with contract 2.8 per cent this year.
The most optimistic stated outlook for the jobless rate is by Tasmanian economic consultant Saul Eslake, who said it would rise to 7.5 per cent from 5.1 per cent now.
Economist Saul Eslake said workers would be cushioned by the government’s response. Photo: Pat Scala
While Mr Eslake expects the economy to contract by 4 to 5 per cent this year, he said the Coalition’s stimulus packages should reduce the effect on employees because companies will be able to continue paying some staff after they stop producing.
“We’ll have a small rise in unemployment given the magnitude you would have expected from this decline in GDP,” Mr Eslake, a former chief economist at the ANZ Bank and the Bank of America Merrill Lynch Australia, said in an interview.
Most other economists, after considering the commercial lockdown across most of the economy initiated on Sunday by the national cabinet, are more pessimistic about the employment outlook.
Morgan Stanley strategist Chris Read said, in a worst-case scenario, one quarter of workers might be unable to find jobs, or as many hours as they want, which would be “easily the highest share in at least 40 years”.
UBS economist George Tharenou said a depression that would drive unemployment to 10 per cent was possible if the business shutdown wasn’t lifted before too long.
UBS senior economist George Tharenou said the stimulus package was larger during the GFC. Brook Mitchell
The government stimulus package is smaller than portrayed, in financial terms and compared with measures taken by the Rudd Labor government during the global financial crisis, he said.
Prime Minister Scott Morrison and Treasurer Josh Frydenberg’s planned spending of about $73 billion is equivalent to 4 per cent of the economy, the UBS team said, which compares with 4.3 per cent during the 2008-09 crisis, when Australia avoided a recession.
Mr Tharenou predicted the economy would shrink 7 per cent in the three months ended June 30, which would be 28 per cent if sustained for a year, “or worse than any quarter during prior depressions”.
Goldman Sachs chief Australia and New Zealand economist Andrew Boak is even more bearish.
He said on Monday that the economy could contract an incredible 40 per cent in the second quarter on 2020 on an annual basis, although he predicted unemployment could be limited to 8.5 per cent, the highest level since 1997.
The former Reserve Bank of Australia and NSW Treasury economist also complained that government officials have not gone farther.
“To date the policy response has not been aggressive enough,” he said in an email on Monday. “The government has scope to do something big here, but it will need to be very big and they will need to act very quickly.”
JP Morgan economist Ben Jarman said the economy would shrink 10 per cent this year – without a third stimulus package he expects to neutralise “some, though far from all of the damage”.
The Financial Review reported on Tuesday morning that the government has set aside another $40 billion for medical supplies and economic stimulus, in addition to $66 billion promised on Sunday and $17.6 billion the week before.
Of the four major commercial banks, only Westpac Banking Corp appears to have issued new financial forecasts.
Westpac chief economist Bill Evans on Tuesday predicted unemployment would reach 11 per cent by June and the economy would contract 3 per cent for the year.
Employment normally deteriorates more slowly than the economy, reflecting a reluctance by managers to shed staff, making Mr Evans’ jobless forecast remarkably gloomy.
A day earlier his colleague Elliot Clarke appeared in a bank video and said the economy would expand 1 per cent this year.
National Australia Bank chief economist Alan Oster said he was predicting a “V-shaped” recession, which means the economy will dive and recover relatively quickly.
“It may be that unemployment gets to 12 per cent and probably would get there really quickly,” he said in an interview. “I don’t know, and I used to run forecasting at Treasury. But neither does anyone else.
“I would be inclined to say that anyone who has lost their job, the government pays 80 per cent of their salary. The employer keeps them on but only pays them 20 per cent.”
Spokesmen for the Commonwealth Bank of Australia and ANZ Banking Group said their economics teams were updating their forecasts.
with Matthew Cranston