“There has been a severe deterioration in the outlook for the Australian economy over the past week as the COVID-19 outbreak has intensiﬁed,” they wrote. “Looking ahead, the global experience suggests social-distancing and broader containment measures will intensify further over the coming weeks.”
As the economy contracts, unemployment will rise to 8.5 per cent, the Goldman economists estimate, from 5.1 per cent in February.
The possibility that some workers leave the labour market while some businesses cut back hours, but retain staff, make the jobless rate tough to estimate.
In a bid to cushion the economic fall out, the Reserve Bank on Thursday joined the international fold with the announcement it will enter the government bond market to lower yields, having exhausted its remaining conventional policy ammunition.
RBA Governor Philip Lowe will aim to keep three-year government bond yield at 0.25 per cent, having cut the cash rate to 0.25 per cent. The RBA also announced a term funding facility of at least $90 billion for the banking system, with particular support for credit to small and medium-sized businesses.
In a complementary program, the federal government will invest up to $15 billion to allow smaller lenders to support consumers and smaller businesses during the virus outbreak. Prime Minister Scott Morrison is also developing a follow-up spending package to expand on the $17.6 billion programme announced last week.
Those measures “deliver a sizeable positive stimulus to growth,” Boak wrote.