We all know Australia is going into recession, but how bad will it be and how long will it last?
The International Monetary Fund has forecast that the Australian economy will contract by 6.7 per cent in 2020 due to the coronavirus lockdown.
However, the IMF expects the domestic economy to rebound by 6.1 per cent in 2021, assuming that measures to contain the virus are successful.
The IMF’s outlook also forecasts that global GDP growth will fall by three per cent in 2020, compared with just 0.1 per cent during the global financial crisis.
The International Monetary Fund’s economic forecasts are based on expectations that the coronavirus will be contained in the second half of 2020 and that there will be no second wave of infection, but they have warned of the potential for a second wave of the coronavirus if a vaccine is not developed.
Economists seem to agree that the domestic economy is likely to experience a V-shaped recovery when it eventually comes.
Of course the biggest unknown is just how long the coronavirus lockdown restrictions will remain in place.
Look how much the government is spending
The global response to the pandemic will result in a massive increase in government spending and debt.
The IMF estimates that our federal government’s spending and revenue measures will equate to about 10.6 per cent of GDP, which is much higher than any other country, meaning the government must pursue tax and regulatory reform in the aftermath of the crisis.
Governments around the world have never before acted like this, shutting down their economies and borrowing and spend on this scale.
They will collectively spend an extra $US3.3 trillion to buoy up their respective economies up output, which are nevertheless expected to shrink 6.1 per cent in 2020 across advanced nations.
Adam Creighton put it well in his column in The Australian:
“Governments will never know how many lives they have saved by prompting the Great Lockdown.
But we should all hope it’s a lot … because the damage most certainly will be.”
NOW READ: Is now a good time to buy property?
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
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