Big jump in jobless forecast as expected recession bites, but it could have been worse

Prime Minister Scott Morrison announced childcare would be free for working parents. Picture: Sitthixay Ditthavong

Unemployment is forecast to jump to 9 per cent of the workforce around the middle of the year, according to analysis by Westpac's economists.

But they say that without the new JobKeeper measures, it would have risen to 17 per cent - about one in six workers.

Westpac's chief economist Bill Evans reckons the economy will have contracted by five per cent through 2020, but he expects it to start growing again towards the end of the year.

Another big financial institution has defended the scale of the government's stimulus in the face of the huge knock given the economy by the on-going virus crisis.

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Deloitte Access Economics, the Australian economics research department of the global accountancy firm, reckons that huge spending can be justified because interest rates are so low and the scale of the problem so big.

"Although the dollars are unprecedented, what's even more unprecedented are the interest rates," Chris Richardson, the head of the research group, said.

"Never in the two thousand years of recorded history of interest rates has it been cheaper for governments to borrow. Never."

But Mr Richardson said the government's measures were credible.

"The dollars are admittedly jaw-dropping: the first Federal response cost $17 billion, the second round cost another $66 billion, and then the third rang the bell at $130 billion.

This is going to put a great strain on the country, clearly, but it is one that is absolutely necessary given the circumstances that we face. But we have still, even in these unprecedented announcements, exercised a discipline and a measure in this.

Prime Minister Scott Morrison

"Does that mean we've just sentenced younger Australians to a lifetime of higher taxes and sub-standard services?

"No, we haven't.

"Although the dollars are unprecedented, what's even more unprecedented are the interest rates we'll be paying on this new debt."

The analysis by the two big financial institutions came as the Prime Minister asserted that the spending was sustainable.

"This is going to put a great strain on the country, clearly, but it is one that is absolutely necessary given the circumstances that we face," Scott Morrison said.

"But we have still, even in these unprecedented announcements, exercised a discipline and a measure in this."

Mr Morrison said the government had been careful to make sure the spending measures were one-off and limited by time.

But he accepted that when the current crisis is over, there will be challenges - though he did not say whether those challenges might involve big cuts in public spending to get the budget back towards balance.

"There is an intensity of expenditure during this period. And then we have to get back to what it was like before.

"And then we have to deal with the burden that will be carried out of this period of time."

Some economists have asked how the "austerity" economics of the past three decades seems to have gone out of the window right across the world. Under the old paradigm, budgets had to be balanced.

Deloitte's Chris Richardson did not feel that the old rules had been jettisoned.

He likened this situation to that of war which demanded extra borrowing and spending.

"Australia's economy will grow again on the other side of this war.

"So, here's a simple suggestion: let's just let our debts from this new war simply become a smaller share of our growing economy over time. That's what we did with the war-time debts of the past."

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