SYDNEY/LOS ANGELES • Australia’s economy will record its first recession since 1991 as the hit from the coronavirus-induced slowdown is amplified by slumping confidence and domestic disruptions.
Gross domestic product (GDP) will fall 0.4 percentage point in the first three months of the year and 0.3 percentage point in the second quarter, ending a 28½-year stretch of economic growth, Mr James McIntyre of Bloomberg Economics said in a report yesterday.
“Isolations and domestic disruptions to contain the spread of the virus will have a mounting economic impact, which is likely to result in a further GDP contraction in the second quarter and potentially beyond,” he said.
“Stimulus, both fiscal and monetary, will help to reduce the damage, but is unlikely to be enough to offset the impacts.”
GDP will expand by just 0.4 per cent this year, he forecasts, some 1.5 percentage points below his pre-coronavirus estimate.
The United States and Europe also face the “distinct possibility” of a technical recession in the first half as the coronavirus outbreak dampens demand and supply and drives investors to safe havens, according to Pacific Investment Management Company (Pimco).
“The worst for the economy is still to come over the next several months,” Pimco global chief economic adviser Joachim Fels wrote in a note to clients, which also cited concerns including a slump in China’s manufacturing and a weaker market for travel-related services.
An all-out price war between the world’s biggest oil producers is adding to the prospect of a recession as the coronavirus wreaks havoc across the world. Panic reigned in currency markets yesterday as orders from traders and algorithmic machines snowballed.
That saw the Australian dollar plunge almost 5 per cent in less than 20 minutes, the biggest one-day decline since 2008. Australia’s benchmark S&P/ASX 200 stock index had slumped 6.2 per cent at 3pm in Sydney.
The Reserve Bank of Australia cut interest rates last week and money markets are pricing in a further reduction next month, which would bring it to the estimated lower bound of 0.25 per cent and open the door to unconventional policy.
The government is finalising a fiscal “boost” that could amount to A$10 billion (S$9 billion) to support firms struggling with cash flow and help them retain employees.
An all-out price war between the world’s biggest oil producers is adding to the prospect of a recession as the coronavirus wreaks havoc across the world.
Mr Fels also predicted further interest rate cuts by the US Federal Reserve. Similar moves to ease monetary policies by other central banks, including those in emerging markets, could also come over the next few weeks. Mr Fels also expects further fiscal easing by governments to support demand to aid an economic recovery.
He wrote his note following Pimco’s quarterly “cyclical” forum, when the firm offers its 12-month outlook. It was staged for the first time by video from 17 global offices amid restrictions on staff travel and gatherings at the firm, which oversaw US$1.9 trillion (S$2.6 trillion) as of Dec 31 last year.