Globally, the economies of rich nations are expected to contract by 5.8 per cent this year and then grow by 3.9 per cent in 2021. By 2021, growth will be back to 1.7 per cent with Australia tipped to be at 2.5 per cent.
The subdued growth will translate into more debt. Before the coronavirus outbreak, Australia’s general government debt was 46.3 per cent of GDP with 13 nations having lower levels of debt.
By 2025, Australian debt is expected to be at 70.9 per cent of GDP with 18 countries holding a smaller debt load.
IMF economic counsellor Gita Gopinath urged all countries to maintain spending throughout the pandemic, which is only likely to abate once a safe and effective vaccine is available.
“The ascent out of this calamity is likely to be long, uneven, and highly uncertain. It is essential that fiscal and monetary policy support are not prematurely withdrawn, as best possible,” she said.
Prime Minister Scott Morrison said the government’s recovery plan was focused on encouraging businesses to start spending money now to support the jobs market.
“The plans we have put in place, the plans we are putting in place, are getting Australia out of the COVID-19 recession and it’s business-led. Because when businesses are making decisions to invest and to hire, that’s when the Australian economy grows,” he said.
While the fund believes its forecasts could be too bleak if there is a vaccine breakthrough or health therapies slowed the spread of the coronavirus, it warned that the economic outlook could be even worse if there are further outbreaks, governments withdrew support too quickly or there was a surge in business failures.
Other risks include a tightening of financial conditions, as occurred in March, plus weather-related natural disasters such as tropical storms, heat waves, droughts or even extreme locust infestations such as the one that hit eastern Africa last year.
Shadow treasurer Jim Chalmers, who will deliver his formal budget reply speech on Wednesday, will use the address to argue the budget lacked ambition, which meant a large amount of debt but an extended period of higher-than-necessary unemployment.
“If Labor was in government now, our fiscal strategy would be anchored around a more ambitious approach to employment. To chart a path back to full employment, in a way that starts to tackle insecure work and chronic underemployment,” he will say.
“This approach doesn’t have to mean more debt, it means debt that’s better deployed to kick-start the recovery and create more jobs.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.