Westpac says economy faces record contraction, budget heading for $160b deficit

Westpac says economy faces record contraction, budget heading for $160b deficit

An unemployment rate of 11.1 per cent, up from 5.1 per cent in February, would put it on a par with the worst levels of the 1990-91 recession. Some other economists believe unemployment could be headed for 15 per cent or more.

Mr Evans said the economy was likely to shrink by 3.5 per cent, or about $16 billion, through the same period – the worst performance since the Australian Bureau of Statistics started quarterly GDP measurements in 1959.

“Economic disruptions are set to be larger as the government moves to address the enormous health challenge which the nation now faces,” he said.

Westpac is forecasting this year’s budget, instead of showing a $5 billion surplus, will record a $90 billion deficit before blowing out to $160 billion in 2020-21. At 8 per cent of GDP, that deficit would be almost double the one delivered by the Rudd government in 2009-10 following the global financial crisis.

Publicly listed jeweller Michael Hill on Tuesday became the latest company to succumb to the effects of the virus, shutting its 165 Australian outlets indefinitely, affecting hundreds of staff. Its online business will continue.

The fallout from the virus has clearly affected consumers, with the ANZ/Roy Morgan weekly measure of shopper sentiment tumbling 27.8 per cent over the past seven days to now sit just above its record low recorded in 1990. It is 17 per cent below the bottom reached during the global financial crisis in October 2008.

All measures, including current financial and economic conditions, stumbled. The biggest fall was on the question of whether it was a good time to buy a major household item, which dropped 37.2 per cent.

Separate data from the Commonwealth Bank and ANZ, tracking consumer spending through their debit and credit card networks, suggested shoppers were loosening their wallets for particular goods.

CBA noted spending on food was up 74.1 per cent on the same week a year ago, but there had been a 20 per cent drop on food services such as restaurants and cafes.

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Spending on medical care and health expenses was up almost a quarter, while expenditure on alcohol was up 20 per cent as people stockpiled wine and beer. But people have cut their recreation expenses (down 16.4 per cent) and transport (down 7.1 per cent).

ANZ senior economists Adelaide Timbrell and David Plank said their data showed sales of electronics, including fridges, was up 22 per cent over the same time last year as people sought ways to store food or work from home.

“We expect household consumption to decline sharply now that tighter social-distancing regulation is in place. The moves to close non-essential services could severely reduce household spending,” they said.

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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

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