Via the excellent George Tharenou at UBS:
Govt Econ Statement to forecast only modestly negative GDP for 19/20 & 20/21
The Australian (Commonwealth) Government will release an Economic Statement (ES) on July 23. Channel checks indicate it will 1) update economic forecasts for a two-year period (20/21 and 21/22), rather than the usual 4-year budget outlook; and 2) detail policy plans specifically for income support – likely JobKeeper and JobSeeker tapering and possibly fast tracking of the 2nd phase of tax cuts ($13bn/year). Due to COVID, we expect very significant downgrades to the MYEFO forecasts. We think real GDP growth for 19/20 onwards could be cut (from 2¼% to 3% y/y), to only modestly negative (<1% y/y) in 19/20 and 20/21, before a rebound to ~5% in 21/22 (stronger than Treasury’s March expectation for a Q2 contraction of at least 10% q/q). This is well above UBS forecasts of -0.3% y/y in 19/20 and -2.7% in 20/21, and towards the RBA’s upside scenario in its May SOMP. Nonetheless, this is still significantly worse than S&P’s assumption back in April that Australia avoids a recession (with GDP of +1.3% y/y in 19/20 and +2.0% in 20/21). At the time, S&P moved Australia’s AAA credit rating to negative outlook, and said they “could lower our rating within the next two years if the COVID-19 outbreak causes economic damage that is more severe or prolonged than what we currently expect.” Meanwhile, for unemployment, rather than MYEFO’s ~flat profile, the ES projected peak will likely be 8% or lower, and then fall back sharply towards the pre-COVID level of ~5¼% by 2022 (similar to the RBA’s upside scenario).
