Leading economists have disputed claims by Treasurer Josh Frydenberg that the International Monetary Fund has overstated the extent of the economic downturn.
The IMF has projected the Australian economy will contract by 6.7 per cent this year amid the deepest global downturn since the Great Depression, driving unemployment up to 7.6 per cent by December and reaching almost 9 per cent in 2021.
IMF chief economist Gita Gopinath said the world was experiencing a "truly global crisis. This makes the Great Lockdown the worst recession since the Great Depression and far worse than the global financial crisis".
The fund has forecast world gross domestic product to shrink by 3 per cent this year before expanding by 5.8 per cent in 2021.
But it warned of "extreme uncertainty" around its predictions, and admitted a lot would have to go right for the global economy to rebound.
"The rebound in 2021 depends critically on the pandemic fading in the second half of 2020, allowing containment efforts to be gradually scaled back and restoring consumer and investor confidence," the fund said.
Mr Frydenberg said the IMF's predictions were "not surprising".
"They reflect the reality we are in and the severe economic impact that economies around the world are facing as a result of the spread of the coronavirus," he said.
But the Treasurer said the IMF's assessment for the Australian economy were too pessimistic because they had been formulated before the announcement of the $130 billion JobKeeper package and recent progress in slowing the rate of COVID-19 infections.
"At the time that the IMF were putting together their figures, the Australian curve was heading in the wrong direction," Mr Frydenberg said.
"We were seeing an exponential increase of more than 20 per cent a day in the number of cases of coronavirus-affected people. Since that time, we've bent that curve and we are seeing a growth of less than 2 per cent per day."
The treasurer said the government had positioned the economy for a "bounce back", and the IMF has projected that growth will rebound to 6.1 per cent in 2021.
But University of Technology Sydney economist Warren Hogan believes that is too optimistic.
Professor Hogan said the JobKeeper package and the slowdown in Australia's infection rates would not have a material effect on the IMF's short-term forecasts but he predicted the recovery would be drawn out and bumpy.
He expects the unemployment rate to spike up to between 11 and 12 per cent in the next four months and fall back to around 9 per cent before surging to between 10 and 11 per cent by the end of 2021.
"One thing I am pretty confident of is that unemployment is not coming back to where it was any time soon.
"Employment and industry are not simply going to go back to normal when social distancing restrictions are ended. We are going to see a lot of businesses fail that were not financially strong coming into the crisis."
HSBC chief economist Paul Bloxham was similarly circumspect about prospects for a quick economic rebound.
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Mr Bloxham said although there was "some probability" of a rapid, V-shaped recovery, it was more likely that the recovery from a recession in the first half of the year would initially be gradual before an acceleration to "really strong" growth in 2021.
He warned there was also a chance of an L-shaped recovery in which a combination of large household debt, high unemployment and slower immigration could test the housing market and the stability of the financial system.
Mr Frydenberg was due to take part in a video conference of G20 finance ministers overnight in which he intended to argue against any moves by countries to erect trade barriers or otherwise interfere in global trade.
"We must continue to see the trade in essential items like health supplies at this time, and the current crisis should not be seen as a cause for protectionism," he said, adding that free trade was "vitally important to ensure that the Australian economy and the global economy get to the other side".
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Adrian Rollins
Adrian Rollins is economics correspondent for the Canberra Times
Adrian Rollins is economics correspondent for the Canberra Times
