RBA offers three scenarios for outlook

Colin Brinsden, AAP Economics and Business Correspondent
·1-min read

WHAT'S NEXT FOR THE ECONOMY?

In its latest statement on monetary policy, the Reserve Bank of Australia has offered three scenarios for the economic outlook.

BASELINE SCENARIO

* Its baseline scenario assumes that no additional large outbreaks and accompanying strict containment measures occur within Australia. Some restrictions on international travel are in place until around the end of 2021. Growth contracts by around four per cent over the year to December 2020, but then grows by five per cent over 2021 and four per cent over 2022. The unemployment rate peaks at a little below eight per cent in coming months, before gradually declining to be just above six per cent in 2022. Inflation is also expected to pick up.

DOWNSIDE SCENARIO

* In the downside scenario, Australia experiences further major outbreaks and there is a loss of control of the virus in other economies. This sees renewed distancing restrictions and curbs on business activities, and the opening of international borders is delayed further. This will weigh heavily on confidence and significantly slow the recovery in consumption and business investment, with the unemployment rate peaking at around nine per cent in late 2021 and declining only a little in 2022.

UPSIDE SCENARIO

* A stronger economic recovery than envisaged in the baseline scenario is possible if additional progress in the medical treatment and control of the virus is achieved in the near term. A sustained improvement in health outcomes domestically and abroad would boost confidence and support private consumption, investment and services exports. In this scenario, the unemployment rate peaks at 7.5 per cent before declining to 5.5 per cent by the end of 2021.

(Source - Reserve Bank of Australia Statement on Monetary Policy)