Australia announced Thursday that its budget deficit is expected to widen significantly as it fights a coronavirus outbreak that ended the economy’s nearly three-decade streak of growth, one of the longest in any country in the world.
The country’s budget deficit is forecast to widen significantly to A $ 85.8 billion ($ 61.27 billion) in the financial year that just ended June 30 from a balanced fiscal position in the previous year, according to a joint statement. from the Australian Treasurer and Finance Minister.
That deficit is projected to widen further to A $ 184.5 billion. ($ 131.78 billion) in the new fiscal year, according to the statement. A Reuters report said that would be the country’s largest deficit since World War II.
Speaking to CNBC’s “Street Signs Asia” after the release of the statement, Australian Finance Minister Mathias Cormann described the numbers as “challenging”. In addition to budget forecasts, the statement also contains the government’s projections for growth, debt levels, and the employment situation.
“We know why we are here. We know that these numbers are the overwhelming result of the impact on our economy (from) the coronavirus pandemic,” he said.
The biggest predictor of the economic outlook is the number of cases (Covid-19) and what that means for the blockade.
Nicki Hutley
Deloitte Access Economics
The Australian government has announced a fiscal stimulus worth A $ 289 billion ($ 206.54 billion) to support workers, households and businesses that are handling the economic consequences of the pandemic. That is equivalent to around 14.6% of the country’s gross domestic product.
That additional spending is expected to cause a significant increase in the country’s debt levels, according to the joint statement. Still, Cormann said Australia’s current financial position is better and stronger than most countries.
“The truth is that … yes, we have had to spend a lot of money, we had to incur temporary expenses at the crisis level, we are only committing expenses for this purpose over a period of two years,” he said.
“Even after all this additional spending, our debt levels remain lower than the debt levels of many other countries before they entered the coronavirus period. Therefore, we have fiscal capacity to continue responding,” added the Minister.
But even with government support, the Australian economy is forecast to shrink by 3.75% this year before growing by 2.5% next year, the statement read.
Nicki Hutley, a partner at Deloitte Access Economics, said the trajectory of the Australian economy largely depends on how the domestic coronavirus outbreak turns out.
The country is experiencing an acceleration in the number of new infections in recent weeks, many of which were concentrated in the state of Victoria, home to Melbourne’s second most populous city. That resurgence in cases led authorities to re-establish a partial blockade in Melbourne.
“The biggest predictor of the economic outlook is the number of cases (Covid-19) and what that means for the shutdown,” “Squawk Box Asia” told CNBC before the government released its budget update.
He explained that the states of Victoria and neighboring New South Wales account for more than half of Australia’s GDP, so the additional blockades would have a “big impact” on the overall economy.
.
