The Reserve Bank of Australia (RBA) Governor Philip Lowe provided an economic update on the fallout from COVID-19 on Thursday.
As a result of government restrictions and high levels of uncertainty amongst consumers, Dr Lowe said the central bank expects the first half of 2020 to see the biggest contraction in national output and income since the 1930s.
"National output is likely to fall by around 10% over the first half of 2020, with most of this decline taking place in the June quarter," he said.
"Total hours worked in Australia are likely to decline by around 20% over the first half of this year."
"The unemployment rate is likely to be around 10% by June, although I am hopeful that it might be lower than this if businesses are able to retain their employees on lower hours."
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Dr Lowe commended the Government for the JobKeeper scheme and said the unemployment rate would have spiked much higher without it.
However, he said unemployment was likely to remain at a high level for the foreseeable future, while wage growth would remain stunted.
"It is harder to make forecasts about the unemployment rate given the uncertainty about how many employees will remain attached to their firm and whether people who are stood down will be looking for employment and thus be counted as unemployed.
"But it is likely that the unemployment rate will remain above 6% over the next couple of years.
"With many firms delaying or cancelling wage increases, year-ended wage growth is expected to decline to below 2%, before gradually picking up again."
The RBA Governor added that inflation was expected to decline significantly in the June quarter, possibly to a negative figure for the first time in almost 60 years.
"The large fall in oil prices, combined with the introduction of free childcare and the deferral or reduction in some price increases mean that it is quite likely that year-ended headline inflation will turn negative in June," Dr Lowe said.
"If so, this would be the first time since the early 1960s that the price level has fallen over a full year. In underlying terms, however, inflation is expected to remain positive."
Dr Lowe said despite Australia being in a strong economic position prior to the pandemic, a sharp rebound was unlikely.
With people learning to work, shop and travel differently, he said businesses may not survive or will be forced to totally rethink business models.
"Whatever the timing of the recovery, when it does come, we should not be expecting that we will return quickly to business as usual," he said.
"Rather, the twin health and economic emergencies that we are experiencing now will cast a shadow over our economy for some time to come.
"It is highly probable that the severe shocks we are now experiencing will change the mindsets of some people and businesses.
"Even after the restrictions are lifted, it is likely that some of the precautionary behaviour will persist."
In order for any sort of recovery, the RBA Governor said a focus on the country's growth and productivity agenda was vital.
"A strong focus on making Australia a great place for businesses to expand, invest, innovate and hire people is the best way of extending the recovery into a new period of strong and sustainable growth and rising living standards for all Australians."
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