Westpac's Bill Evans tips 2020 recession
Westpac's chief economist Bill Evans, dubbed the rate whisperer for his consistently accurate forecasts on the RBA's cash rate calls, has predicted a 2020 recession in Australia.
"On a quarterly basis we expect the economy will contract in both the first and second quarters by 0.3% and 0.3% respectively", Evans said.
Evans however noted Australia won't come out of 2020 in negative growth.
"[The decline will be] followed by a rebound of 1.4% and 0.8% respectively in the third and fourth quarters", Evans continued, which would put the economic growth in 2020 at 1.6 per cent.
Evans says it will technically be a recession, which is defined as back to back quarters of negative growth, however he says given the forecasted second half of the year pick up it should be characterised as a "major disruption".
Evans says they expect the unemployment rate to hold below six per cent over the period. Australia's last two recessions saw the unemployment rate rise from six per cent to 11 per cent.
The veteran chief economist also says there's a great level of uncertainty surrounding the forecasts due to the unpredictable course of the coronavirus outbreak.
"The economy will be dealing with the impact of the virus when it is in a relatively fragile state with growth in 2019 at 2.2% compared to potential of 2.75%", Evans said.
Evans speaking on the prospect of a recession. Source: Westpac
He believes the 0.3 per cent contraction in the March quarter will be driven by a 10 per cent decline in services exports such as education, tourism and transport, as well as a 3.5 per cent decline in goods exports.
Evans says of most importance in the 0.3 per cent forecast decline in the June quarter will be a 1.2 per cent contraction in consumer spending.
"The most vulnerable components of consumer spending (hotels; restaurants and cafes; recreational services; and air travel) are forecast to contract by two per cent in the March quarter to be followed by
a 13 per cent contraction in the June quarter."
Evans did however add that consumer spending on products such as food and other essentials will be up 3.4 per cent.
But by the September quarter the contraction will have ended.
“Our figuring is on the basis that by the September quarter the direct impact of the virus and the policies required to contain it will have eased significantly. We expect that development on a global basis providing a significant boost to financial markets.”
The third quarter would show a 1.4 per cent increase in GDP, which would be followed by a 0.8 per cent increase in the final quarter of 2020.
“Based on this growth profile we expect that the unemployment rate will increase to a peak of 5.8 per cent in the second half of 2020; that will be marked by a period of no new jobs growth, followed by outright job losses, to be followed by a sequence of months with jobs growth beginning to recover in the fourth quarter,” Evans said.
“Partly easing the pressure on the unemployment rate will be a fall in the participation rate as workers become discouraged by the deteriorating jobs market.”