(Bloomberg) -- Australia’s recession will extend into a third quarter, making it the longest slump since 1982-83, and unemployment remain elevated next year due to a tepid recovery, according to Commonwealth Bank of Australia (OTC:CMWAY).
It predicts gross domestic product will fall 0.7% in the current quarter after declining 6% in the prior period; the economy contracted 0.3% in the first three months of the year. Australia’s jobless rate is forecast to peak at 9% in the final months of this year and then average 8.8% through 2021, the bank said.
“Courtesy of the large roll the Commonwealth Bank plays in the Australian economy we can see the most recent deterioration in the labor market,” said Stephen Halmarick, chief economist at the nation’s largest lender. “A large number of people have, once again, found themselves without employment and have had to either start, or restart, receiving the JobSeeker payment.”
The downward revisions to the bank’s forecasts reflects a renewed lockdown in Victoria state, accounting for about a quarter of GDP, which will drag on the national performance. The Reserve Bank of Australia, in its updated forecasts released earlier this month, sees the economy basically flat in the current quarter and expects unemployment to peak at 10% later in the year.
CBA expects only a “modest recovery” in the economy in 2021, forecasting GDP to rise just 1.8% from a year earlier. It predicts the economy won’t return to its pre-Covid level until the second half of 2022 “at the earliest.”
On a more positive note, China’s role as first nation to fall victim to the virus and first to recover means its stimulus measures are driving demand for the chief ingredient in steel, iron ore, which is Australia’s largest export. CBA forecasts the price will average a still high $110 a ton in the fourth quarter -- from $129 at present -- and then ease back to $90 a ton late next year.
Halmarick also highlighted the surge in income since the onset of Covid-19, reflecting the Australian government’s substantial stimulus program. Indeed, total income flowing into CBA bank accounts is now a little over 20% higher than it was this time last year, he said.
While some of that is being spent, a lot is also being saved, he says. CBA’s average total savings balance per household, including home lending related savings and transaction or savings accounts, was up 14% in July from a year earlier.
©2020 Bloomberg L.P.