- Australia's unempoyment rate is set to climb to 7% by October 2020, according to Westpac's latest forecasts.
- Its economists made the prediction, noting the government's stimulus package won't avert a recession.
- Chief economist Bill Evans also warned business conditions will only get worse if Australia was to enter a "European-style full lockdown".
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It's the news no one wants to hear.
As the coronavirus takes Australia into its first recession in 30 years, people will lose their jobs and unemployment will shoot up from its current 5.3% to levels not seen in decades, according to Westpac's latest forecasts.
"The unemployment rate is now forecast to reach 7% by October 2020 – up from the previous estimate of 5.8% to 6.0 – due to the larger negative shocks to the labour-intensive sectors such as recreation, tourism, education, renovations and addition, and dwelling construction," Westpac chief economist Bill Evans said.
He noted that the official forecast would be even worse if some job seekers weren't also expected to stop looking for work as the economy deteriorates -- the headline unemployment figure only covers those actively seeking work who cannot get it.
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The update makes for sobering reading. The last time unemployment reached that level was in 2003, while you'd have to go back to the 1990s to really see anything above that. That remains a distinct possibility, with Evans stating that business conditions will only get worse if Australia was to enter a "European style full lockdown".
"Not surprisingly, the forecasts are subject to downward revision in the event of such an occurrence," he said.
For what it's worth the Federal Government reaffirmed on Wednesday it has no intention of locking the country down. Other major measures announced in recent weeks, including mandatory quarantine for foreign visitors and restrictions on public gatherings, however, will have major economic repercussions, Evans said.
"We have increased our estimate of the shock to the most exposed component of consumer spending – hotels, restaurants and cafes, recreational services, and air travel – to minus 40% over the two quarters from minus 25%," he said. "We [also] expect outbound and inbound tourism to contract by 80% over the two quarters."
Taken in sum, Westpac now sees the Australian economy contracting by 1% in the first half of 2020 spurring a presumably short-lived recession before growing 2.5% in the back end of the year.
The Federal Government’s $17.6 billion stimulus package "would not be sufficiently stimulative to avert a recession", Evans concluded.
The only real silver lining to the whole analysis is that Evans says while Australia will suffer a deep recession, it shouldn't be nearly as painful as Australia's last one in 1991 when unemployment almost doubled to reach 11%.
Small comfort perhaps.