Lower your debt, refinance your loans and get on top of your money to survive the downturn
History has given us the Great Depression, the Wall St Crash and in Australia the ‘recession we had to have’, but now we are looking at what is termed as the ‘Great Lockdown’.
According to the IMF’s latest forecast in its updated World Economic Outlook, the Great Lockdown will be responsible for Australia’s economy shrinking by 6.7 per cent this year and unemployment t averaging 7.6 per cent, with the global economy shrinking 3 per cent.
“This crisis is like no other,” the report warned.
“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.”
This is a deeper contraction than during the 2008-09 global financial crisis.
According to the IMF, the United States will contract –5.9 per cent, Japan –5.2 per cent, the United Kingdom –6.5 per cent, Germany –7.0 per cent, France –7.2 per cent, Italy –9.1 per cent, and Spain –8.0 per cent.
While it does state the uncertainty in these economies could lead to far worse consequences, there is a light at the end of the tunnel.
The report suggests the pandemic will fade over the second half of 2020, with containment efforts to be unwound and the global economy to partially bounce back in 2021.
The IMF predicts the economic growth rate to be 5.8 per cent, however it also states that effective policies need to be put in place to combat any new waves and further lockdowns.
“Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health,” the report stated.
“The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing health care expenditures to strengthen the capacity and resources of the health care sector while adopting measures that reduce contagion.”
Australia will rebound, but not until 2020
While the Morrison government expects Australia's unemployment rate in the June quarter will hit 10 per cent, the report says advanced economies such as Australia’s that have “strong governance capacity, well-equipped health care systems, and the privilege of issuing reserve currencies are relatively better placed to weather this crisis”.
While the IMF forecasts Australia's economy will shrink by 4.5 per cent in 2020, it points to growth by four per cent in 2021 – a 2.2-point improvement on its April outlook.
This is a stark contrast with other nations.
“According to the IMF, the economic outlook for Australia is the second-best among all advanced economies, second only to (South) Korea,” Treasurer Josh Frydenberg said.
The IMF believes that all governments should refrain from hastily rolling back wage subsidies and other stimulus support just as economies are re-opening and finding their feet.
The report recommends these stimulus packages be replaced with broader spending on climate change action and social safety nets.
“Given the tremendous uncertainty, policymakers should remain vigilant and policies will need to adapt as the situation evolves,” IMF economic counsellor Dr Gita Gopinath said.
The rollback should be gradual, with wage subsidies, cash transfers, credit guarantees to business and widened criteria for unemployment payments replaced by public investment. This would act to accelerate the recovery.
An expanded social safety net is also recommended.
The Federal government has already announced grants and loans totalling $250 million will be available for the arts sector, one of the hardest hit sectors in the country.
Further announcements are expected on 23 July, when My Frydenberg hands down his economic statement.
How can you protect yourself?
There are several ways that you can shield yourself from the financial impact being suffered by many hit hard by COVID-19.
If you haven’t already, speak to your bank to see if you can move to an interest only loan or defer payments. While the banks are rolling back some of their stimulus, they are still ready and willing to help. You can compare low interest rates to find the mortgage that best suits you. The lowest three year fixed term interest rate compared by InfoChoice starts from 1.79 per cent (comparison 3.10 percent) with Bank Australia. Of the big four banks, Westpac is offering 2.19 per cent (comparison 3.36 per cent).
Other things you should consider are ditching your credit card or finding one with a lower interest rate. Put your money into a term deposit or open a high interest savings account. You should also create a budget to monitor your expenditure or upskill or reskill.
There are a range of options open to you that will guide you through this most uncertain of times. You just need to figure out the right move for you.
This update is not financial advice. This article is general news and information.
Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.
Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.
The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements
InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.
The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.