Australia: Rising risks of a recession in 2020 – UOB

FXStreet reports that economist at UOB Group Lee Sue Ann assessed the latest GDP figures in Australia for the January-March period.

“Australia’s GDP contracted by 0.3% q/q in 1Q20, from an expansion of 0.5% q/q in 4Q19, and a tad above expectations of -0.4% q/q. The negative quarter is only the fourth time this century the economy has gone backward in a three month period. The last recession was in 1990-91. The last time Australia's national accounts showed a contraction in economic growth was in March 2011.”

“Growth in the second quarter is expected to be far worse, with the full impact of the COVID-19 pandemic putting around 1 million people out of work, and prompting unprecedented stimulus from both fiscal and monetary authorities in March. We are expecting a large fall in GDP in 2Q20 of - 4.6% y/y, followed by smaller contractions of -2.8% y/y in 3Q20 and -0.9% y/y in 4Q20.”

“We do not see further reductions in the cash rate, with negative rates ruled out by RBA Governor Phillip Lowe (for now). The focus will thus remain firmly on end-user rates via the yield curve target, as well as ensuring sufficient liquidity in bond markets and the free flow of credit to households and businesses. Given our view of a further rise in the unemployment rate, we also expect labour market indicators to be important for policy going forward.”