Australia’s Banking Chiefs Warn of Extreme Economic Pain Ahead
(Bloomberg) — Australia’s banking chiefs are braced for a nightmare scenario of a 10% economic contraction, “shockingly high” unemployment and spiraling loan losses as shockwaves from the coronavirus ripple through the economy.
As Prime Minister Scott Morrison’s administration follows other countries in shutting down large segments of the economy to try to stem the virus’s spread, signs of individual and business tolls are starting to multiply.
Tens of thousands of workers have already been sent home as retailers and airlines all-but close and queues outside job centers lengthen. Australia’s lenders are watching this play out in real time, with hardship telephone numbers ringing off the hook as consumers and businesses try to access relief packages.
Banks are the “ICU unit of the economy,” Australia & New Zealand Banking Group Ltd. Chief Executive Officer Shayne Elliott said Monday at an Australian Financial Review event — conducted online due to the pandemic. “Corporates and households will come into care and we will have this unfortunate role at some point of having to decide who comes out at the end.”
A week ago, Commonwealth Bank of Australia Chief Executive Officer Matt Comyn said he would have estimated the economy would shrink by about 5% in the first quarter. Now, a 10% contraction is a “reasonable assumption,” Comyn said at the same event. “No question there are going to be higher loan losses.”
The nation’s banks have special dispensation from the competition authority to co-operate throughout the crisis and have banded together to launch a range of hardship measures, including allowing consumers to suspend mortgage payments for up-to six months.
National Australia Bank Ltd. Chief Executive Officer Ross McEwan echoed his counterparts on the dire outlook for the economy.
“I think you will see very, very large GDP drops,” he told the the same forum. “Unemployment will also go shockingly high for a period of time.”
NAB’s economics research team said Friday the jobless rate could soar to 12% and hold there for the remainder of the year.
Right now, the three CEOs emphasized that the focus is on getting through the crisis and being prepared to help the economy reboot on the other side. In the medium term, that’s likely to mean tough choices about who gets help.
“There is no playbook for this,” McEwan said. “We’ve not seen this sort of health and financial crisis at the same time.”
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