Australian economy to recover from pandemic 'sledgehammer' but unemployment to remain high

The Australian economy has taken a "sledgehammer" hit from the coronavirus pandemic, with it set to shrink by 3 per cent this year, according to a new report.

Deloitte Access Economics is predicting the economy will shrink by 0.4 per cent through 2020-21 after shrinking by 0.1 per cent in 2019-20. That would be the first period the economy had experienced two years of negative growth since the early 1980s recession.

But following the downturn, the economy is predicted to grow by 5.3 per cent in 2021-22 and then 4 per cent the following year.

But the recovery is dependent on the reopening of borders and the discovery of an effective vaccine.

READ MORE: Infrastructure spending to lead economic recovery plan

Until then government spending is holding the economy together, with the JobKeeper wage subsidy scheme being effective in maintaining household incomes.

The report says "the virus has taken a sledgehammer to Australia's economy" with no state or territory unscathed.

Victoria which is battling a new spike in cases has suffered the biggest hit.

The need for tighter restrictions in the state has sent job losses soaring and caused consumers to save their cash instead of spending.

Deloitte partner Chris Richardson said the economy would benefit from the way the coronavirus had been controlled.

But he also warned unemployment will remain high, with the pandemic costing 835,000 people their jobs.

"The recession may well have already past its worst," he said.

"Even so, families are struggling with the toxic trio of high debt, high unemployment and low confidence and 2020 is a shocker of a year. The ranks of the unemployed will be badly swollen for a while."