IMF predicts Australia to yoyo out of recession

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April 16 2020
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The Australian economy is expected to bounce back almost as quickly as it falls, with the International Monetary Fund calling Australia’s recovery as V-shaped.

IMF predicts Australia to yoyo out of recession

Australia’s GDP will shrink by a massive 6.7 per cent in 2020, with a potential rebound of 6.1 per cent in 2021, restoring hope for the “V-shaped” recovery that many economists were predicting before the fallout from COVID-19 began.

Treasurer Josh Frydenberg welcomed the report, saying Australia was approaching the crisis “from a position of economic strength”.

“The IMF is forecasting Australia to grow by 6.1 per cent in 2021, faster than the economies of the United States, Canada, Japan, France, Germany and the United Kingdom,” Mr Frydenberg said.

But the prediction of a V-shaped recovery has been disputed by former prime minister Kevin Rudd, who believes this is based off the best case scenario.

“How long do we maintain lockdown, how long do we maintain social distancing, and how long do we maintain quarantine?” Mr Rudd said on ABC Radio.

“That’s the huge variable on all of this, and if you read carefully in the fine print of the IMF report, its 2021 rebound projections are very much conditional on that.”

Mr Rudd, who recently joined an IMF advisory board, believes that the recovery is more likely to be U-shaped or even W-shaped, with “fluctuations in public health recovery and public economic recovery” requiring policy measures to be updated constantly.

“Measures on the fiscal side covering the demand gap are good and important,” Mr Rudd said.

“Monetary policy measures are important as well. But frankly, preventing this crisis from metastasising into a financial crisis is a core challenge for policymakers around the world at present.”

Despite a quick bounceback, the IMF is still predicting COVID-19 to be the worst global recession in almost a hundred years amid massive output losses and ongoing economic uncertainty.

“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” said IMF chief economist Gita Gopinath.

State Street Global Advisors head of global macro policy research Amlan Roy believes the impact could be a lost decade for overseas emerging economies.

“The practice of referring to V- or W-shaped recoveries has always been puzzling without specification of the angle, depth and time periods associated with such letter references.

“In a bad scenario, it could lead to a lost decade for many emerging market countries. The need of the hour is global coordination to ensure that the lowest deciles of poorest and even rich countries, especially those in the informal sector do not get left behind.”

“The operational logistics of getting resources (food, water, medicines, funds etc) in a timely fashion to those who need it most requires coordination within and across countries – it is a human crisis, not just an economic one.”

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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