2020.08.0705:46:00UTC+00Australia's Economy To Recover Slowly: RBA

Australia's economy is set to log a slow recovery given the ongoing spread of the coronavirus and the response to contain it, the Reserve Bank of Australia said in its quarterly Statement on Monetary Policy, released Friday. According to baseline scenario of RBA, GDP is expected to contract by around 6 percent over the year to December 2020, but then grow by around 5 percent over 2021.

The outlook for 2020 was largely unchanged from the previous projection but downgraded the projection for 2021 from 6 percent.

"We now think that, even though the initial contraction was smaller, the subsequent recovery is likely to be more protracted and progress on reducing unemployment will be slower," Luci Ellis, RBA Assistant Governor, said.

"The recovery is expected to be slow and uneven, and GDP will probably take several years to return to the trend path expected prior to the virus outbreak," Ellis said.

The recent outbreak of the coronavirus in Victoria and the associated introduction of restrictions on activity are likely to reduce national GDP growth by at least 2 percentage points in the September quarter.

A contraction in demand represents an enormous shock to the labor market, Ellis noted.

The unemployment rate is expected to rise to almost 10 percent over the next six months and gradually decline to around 7 percent over the latter part of the forecast period.

Underlying inflation is expected to remain below 2 percent over the next couple of years.