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MNI POLICY: RBA Sees Sharp GDP Fall, Slow Recovery: Ellis
The Reserve Bank of Australia is expecting a sharp fall in GDP growth and a further increase in unemployment even under a baseline scenario where new pandemic lockdowns are successful and domestic restrictions ease over the rest of 2020, a senior policymaker said Friday.
Speaking as the RBA published its quarterly Statement on Monetary Policy, Assistant Governor Luci Ellis told a webinar that under new forecasts the imposition of stage four lockdowns in Melbourne would reduce 2020 growth to around 6% lower than forecasts made in December 2019 for 2.7% growth.
"The situation in Victoria will reduce growth in the September quarter and push out the recovery beyond that," Ellis said.
"The recovery is expected to be slow and uneven, and GDP will probably take several years to return to the trend path expected prior to the virus outbreak," Ellis added.
The situation in Melbourne would also hit the labour market, which the Bank previously said had "turned the corner" prior to the new outbreak.
"We expect that employment and total hours worked will decline over the next few months, partly because of the increased activity restrictions in Victoria." she said, noting that household incomes were forecast to decline later in the year when the Federal Government's JobKeeper support program begins to taper off, but accumulated household savings meant this would not "derail growth in household consumption."
SCENARIOS
Ellis said the RBA had modelled three scenarios based on the progress of the pandemic. The downside scenario assumed that infection rates continued to escalate around the world this year and next, and Australia would face a series of outbreaks and periods of Stage 3 or 4 restrictions in some states.
Under this scenario, economic activity would suffer a near term weakness, confidence would be damaged and the recovery would be much slower. The downside scenario also assumes that Australian borders will remain closed to most travelers for all of 2021.
More detailed forecasts will be delivered in the Statement on Monetary Policy to be released today.
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