$130 billion will be shaved off the Australian economy this year, as the IMF forecasts the worst recession since the Great Depression

COVID-19 has put economic growth on the chopping block. (Photo by Vladimir SmirnovTASS via Getty Images)
  • Australia’s economy will contract by 6.7% and unemployment will average 7.6% in 2020, according to the International Monetary Fund (IMF).
  • Updating its forecasts this week, the IMF said that if governments are successful in containing COVID-19, it then expects Australia to begin a fairly speedy recovery – growing 6.1% in 2021 – along with the rest of the world.
  • However, IMF economic counsellor Gita Gopinath warned that before that happens the world will see “the worst recession since the Great Depression, and far worse than the Global Financial Crisis”.
  • Visit Business Insider Australia’s homepage for more stories.

The International Monetary Fund (IMF) appears in lockstep with Prime Minister Scott Morrison, with both comparing the imminent recession to the Great Depression.

On Tuesday, the IMF released its official forecasts and revealed it expects a global contraction of 3% this year, instead of the 3% growth it had committed to in January, just before the COVID-19 outbreak became a global threat.

“As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown,” IMF economic counsellor Gita Gopinath said in the report. “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.”

“This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.”

2020 will make 2009 look like a cakewalk according to the IMF

With the virus to have a sweeping impact on economies – and healthcare systems – around the world, Australia is hardly immune. Australia’s economy will shrink by 6.7% this year, or by a quantum of around $130 billion, while unemployment will average 7.6% in 2020 and 8.9% in 2021, according to the IMF. For the record, the Australian Treasury expects unemployment to hit 10% by June this year.

However, it comes with an optimistic caveat. The IMF expects the recession will be ‘V-shaped’, meaning a rapid downturn followed by a speedy recovery as countries bounce back.

“Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, we project global growth in 2021 to rebound to 5.8%,” Gopinath said.

Australia will come in even higher, with its economy expected to grow 6.1% in 2021, or returning it to with 0.6% of where it began the previous year.

On balance it’s not such a bad result. While Australia’s contraction will be larger than most other countries – New Zealand’s 7.2% not included – so too will be its recovery.

Other nations won’t be so lucky. If the IMF is on the money, at the end of 2021 Japan’s economy will still be 2.2% smaller, the UK by 2.5%, Canada and Russia by 2%, Brazil by 3.4%, and the US by 1.2%.

Equally, Spain and Italy, two of the worst-hit European nations, will still be 3.7% and 4.3% worse off even after a year-long recovery.

China meanwhile, having appeared to have largely contained its outbreak, will see its economy actually finish 2021 8% larger than it was at the start of 2020.

That should bode well for Australia at least.