RBA On The Economic Outlook

"The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. As difficult as this is, the downturn is not as severe as earlier expected and a recovery is now underway in most of Australia. This recovery is, however, likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy. Given the uncertainties about the overall outlook, the Board considered a range of scenarios at its meeting. In the baseline scenario, output falls by 6 per cent over 2020 and then grows by 5 per cent over the following year. In this scenario, the unemployment rate rises to around 10 per cent later in 2020 due to further job losses in Victoria and more people elsewhere in Australia looking for jobs. Over the following couple of years, the unemployment rate is expected to decline gradually to around 7 per cent.

The Board also considered other scenarios. A stronger recovery is possible if progress is made in containing the virus in the near future. This progress would support an improvement in confidence and a less cautious approach by households and businesses to their spending. On the other hand, if Australia and other countries were to experience further widespread lockdowns, the recovery in both output and the labour market would be delayed. Details on these scenarios will be provided in the Statement on Monetary Policy on 7 August.

In each of the scenarios considered by the Board, inflation remains below 2 per cent over the next couple of years. In the most recent quarter, CPI inflation fell to –0.3 per cent in year-ended terms, reflecting lower oil prices and the effects of various policy measures, including the decisions to make child care and some pre-school free for a period. Inflation is expected to return to positive territory in the current quarter. Beyond that, given the ongoing spare capacity in the economy, inflation is expected to average between 1 and 1½ per cent over the next couple of years."