Australia’s exceptional expansion: All good things must come to an end
- Australia’s economic situation has deteriorated significantly in recent months on the back of the coronavirus outbreak and some weakness in commodity prices. Given the recent developments, we now look for the Australian economy to contract 2.2% for the full-year of 2020, marking the first recession since the early 1990s.
- The Australian government announced large fiscal stimulus measures aimed at supporting businesses and households in response to the recent pandemic. These include additional fiscal spending of A$194B (almost 10% of GDP), as well as measures to support the flow of credit. On the monetary policy front, the central bank slashed its Cash Rate to an all-time low of 0.25% in March and deployed several unconventional policy measures including a quantitative easing program.
- The Australian dollar has weakened over 13% since the start of the year, and other than the Norwegian krone, is the worst performing G10 currency this year. We expect some further decline in the Australian dollar before eventual stabilization.
Australia’s Economy Gloomiest Since 1991
In recent months there have been significant developments in the Australian economy, with the outlook weakening sharply amid the coronavirus outbreak and with commodity prices under some pressure. Most recently, the Australian government joined its international peers in imposing tougher measures to contain the spread of coronavirus that has infected over 5,700 individuals across the country. The government extended its shutdown of non-essential services by banning travel overseas, closing most businesses and restricting large events such as funerals and weddings. With non-essential services and businesses closing, the labor market is likely to be significantly depressed in months ahead. On balance, these major disruptions to economic activity are likely to drag on growth for the full-year 2020.
Author
Wells Fargo Research Team
Wells Fargo
