Great Lockdown' could rival Great Depression with -6.7% blow to Australian economy

The International Monetary Fund's (IMF) latest forecasts paint a bleak picture for the Australian economy, with gross domestic product (GDP) expected to shrink by 6.7% in 2020. 

GDP figures provide a snapshot of the economic health of a country and is used to estimate the size and growth rate of an economy: During the Great Depression, GDP in Australia declined by 10%.

Unemployment in Australia is also forecast to average 7.6% according to the report, a more generous figure than Treasury unemployment estimates of 10%.

IMF chief economist Gita Gopinath warns the 'Great Lockdown' will be "a crisis like no other".

"It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago," Ms Gopinath said.

"The Great Lockdown, as one might call it, is projected to shrink global growth dramatically."

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Global economic growth to fall by 3% in 2020

The IMF tipped global economic growth to shrink by 3%, making it a deeper recession than during the GFC.

But the worlds' most advanced economies, where the pandemic has hit hardest and severe lockdown measures have been deployed, would fare the worst, falling by 6.1% this year.

The IMF forecast economic growth would plummet by -5.9% in the United States, -7.0% in Germany, -9.1% in Italy, and -6.5% in the United Kingdom.

The report said the global economy could bounce back by as much as 5.8% in 2021, but warns much worse outcomes are still possible and depend on how the pandemic unfolds.

"A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound," Ms Gopinath said.

"Much worse growth outcomes are possible and maybe even likely. This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment."

Ms Gopinath conceded it is extremely difficult to predict what impact the pandemic will have on the global economy.

"There is extreme uncertainty around the global growth forecast," she said.

"The economic fallout depends on factors that interact in ways that are hard to predict, including the pathway of the pandemic, the intensity and efficacy of containment efforts, the extent of supply disruptions, the repercussions of the dramatic tightening in global financial market conditions, shifts in spending patterns, behavioural changes (such as people avoiding shopping malls and public transportation), confidence effects, and volatile commodity prices."