Australian Economy is facing its worst economic shock since the Great Depression of the 1930’s, according to a leading analyst.

The Australian economy will shrink by 6 per cent in 2020 – in what will be Australia’s first recession since the early 1990s.

Most of the contraction is expected to be driven by a collapse in ‘social’ consumption – spending at hotels, cafes and restaurants will fall more than half, while spending on many discretionary categories will drop by up to one third.

A huge change in behaviour, with the COVID-19 crisis forcing people into their homes for work and entertainment, will change the shape of the local economy.

“As more people work from home, higher spending on food and utilities will provide a modest offset, but investment activity and exports are also likely to contract,” the economists wrote.

“There has been a severe deterioration in the outlook for the Australian economy over the past week as the COVID-19 outbreak has intensified,” they wrote. “Looking ahead, the global experience suggests social-distancing and broader containment measures will intensify further over the coming weeks.”

In response, the Australian Government and Reserve Bank are acting.

Australian interest rates are at historically 0.25 per cent.

The RBA is pumping $90 billion into the banking system, with particular support for credit to small and medium-sized businesses.

The Federal government will invest up to $15 billion to allow smaller lenders to support consumers and smaller businesses during the virus outbreak. Prime Minister Scott Morrison is also developing a follow-up spending package to expand on the $17.6 billion programme announced last week.

The Australian Banking Association (ABA) says all small businesses hit by the coronavirus pandemic will be able to access a six-month deferral of all loan repayments.

Key points:
Repayment of $100 billion in small business loans put on hold amid coronavirus outbreak
The Banking Association expects that will put $8 billion back in small business’ pockets
The banks will consider home loan relief measures if households enter mortgage stress
ABA chief executive Anna Bligh said the relief package would apply to more than $100 billion in small business loans and expected it could put $8 billion back into the pockets of these companies.

“Small business can rest assured that if they need help they will get it,” she said.

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