The asset consultant’s internal economic modelling is predicting a potentially “very large” recession for Australia this year, as COVID-19 rolls on.
Frontier Advisors used the RBA’s MARTIN, a new macroeconomic model the central bank built in 2018, to model growth outcomes for two scenarios: a shorter-term one where global growth slowdown spills over to Australia as local consumption slows, and a longer-term one where the slowdown stretches out over a longer period.
In both cases, Frontier‘s modelling is predicting likelihood of a recession, as defined by two successive quarters of negative GDP growth, according to a presentation sent to its clients yesterday.
This is a far cry from the 2% growth expectation that Frontier pegged to the Australian economy at the start of this year.
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In a ‘temporary’ scenario, Australia’s GDP growth for this year came out at -1% whereas in an ‘extended’ scenario, local growth will slow down to -6% for this year.
“The model would suggest that we are close to entering a recession, and it could be very large,” said Philip Naylor, one of the consultants who worked on the modeling.