Australia forecasts biggest postwar fiscal deficit on virus-driven stimulus

SYDNEY (Reuters) – Australia reported its biggest budget deficit since World War Two on Thursday as the coronavirus crisis knocks the country into its first recession in three decades.

The budget balance swung into a massive deficit of A$85.8 billion ($61.3 billion) in the year-ended June 2020 with the shortfall forecast to further widen to $184.5 billion in 2020-21, Treasurer Josh Frydenberg said.

In mid-March, when strict social distancing rules and mobility restrictions kicked in and shuttered businesses, the government announced a fiscal stimulus package of around A$289 billion or, 14.6% of gross domestic product (GDP).

“This necessary and unprecedented level of economic support, coupled with declines in taxation receipts…has significantly impacted the budget position,” Frydenberg said.

Net debt is expected to be A$488.2 billion, or 24.6% of GDP at 30 June 2020 and jump to A$677.1 billion, or 35.7% of GDP by mid-2021.

Despite the government support, real GDP likely contracted by 7% in the second quarter though activity is expected to have picked up in the current quarter.

Frydenberg forecast the unemployment rate would peak at around 9.25% in the fourth quarter but will stay elevated beyond 2020.

While anti-virus restrictions have broadly been eased across most of the country, Australia is still in the grip of heightened uncertainty as its second most populous state is seeing a second wave of infections.

The country on Wednesday posted its biggest one-day jump in new infections amid a surge in cases in Victoria, which earlier this month ordered nearly 5 million people to stay home.

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