Treasurer paints a grim economic forecast

At an economic update on Thursday, the Treasurer painted a grim picture of Australia’s economic future, noting a budget contraction of $85.8 billion in 2019-20 and $184.5 billion in 2020-21, marking Australia’s biggest deficit since World War II.

“Through the government’s strong fiscal management, Australia entered the COVID-19 crisis in a position of economic and fiscal strength,” said Josh Frydenberg.

“We returned the budget to balance for the first time in 11 years, which underpinned the capacity to respond to this unprecedented shock.”

Referencing Australia's unprecedented economic support, the Treasurer revealed that fiscal support measures alone have peaked at $164 billion, or 8.4 per cent of the GDP.

“Ninety-nine per cent of that spending is over the financial years 2019-2020 and 2020-2021,” Mr Frydenberg said.

“Our measures have been temporary, they have been targeted, and they have helped to maintain the structural integrity of the budget.”

The Treasurer, however, unveiled significantly increased debt levels, with net debt expected to have hit $488.2 billion (24.6 per cent of GDP) at 30 June 2020 and increase to $677.1 billion (35.7 per cent of GDP) at 30 June 2021.

But while the government’s economic support in response to the COVID-19 pandemic is estimated to have increased the level of real GDP by around 0.75 per cent in 2019-20 and around 4.25 per cent in 2020-21, on a calendar-year basis, real GDP is predicted to drop 3.75 per cent in 2020, before bouncing back 2.5 per cent next year.

Moreover, the unemployment rate is forecast to peak at around 9.25 per cent in the December quarter, although labour market conditions are expected to strengthen beyond 2020.

Addressing the economic situation around the world, Mr Frydenberg said Australia is doing much better than most advanced economies despite these eye-watering figures.

“We can see the mountain ahead, and Australia begins the climb,” he said.

“We will get through this together.”

The Treasurer revealed that one of the key assumptions in Treasury's modelling is that Australia will reopen its international borders with a 14-day quarantine from 1 January. It's economic outlook is also based on the assumption that Victoria will not be forced to extend its current stage three measures beyond the initial six weeks.