Australia’s central bank slashed rates and pumped A$100bn (£53bn) into its economy on Tuesday to fight the Covid-19 slump amid rising trade tensions with China.
The Reserve Bank of Australia cut rates to a record low of 0.1pc and ramped up bond-buying plans as the nation struggles in its first recession for 30 years.
It has also pledged to keep interest rates on hold for at least three years to support the recovery of the A$2 trillion economy.
Philip Lowe, the Reserve Bank governor, edged up growth forecasts but warned that “we need to recognise that the pandemic has inflicted significant damage on our economy”.
Unemployment has jumped from 5pc to 6.9pc since the pandemic erupted and the Reserve Bank predicts the jobless rate will still be as high as 6pc by the end of 2022. The economy contracted by 7pc in the three months to June.
“We face the prospect of a long period of higher unemployment and underemployment than we have become used to,” Mr Lowe added.
Without the Australian version of the furlough scheme, which Prime Minister Scott Morrison has extended until March, economists warn unemployment would be higher still.
Mr Lowe insisted that the central bank was not out of firepower but said a move to negative rates was “extraordinarily unlikely” because it could prompt people to save rather than spend.
Australia’s economic headaches mounted on Tuesday as China imposed import bans on a host of products in the latest escalation of an ongoing political row over the origins of coronavirus.
China has suspended imports of some timber and barley and delayed clearance for a $1.4m shipment of live lobsters as Beijing puts pressure on the Australian government to drop its support for an investigation into the origin of the pandemic, which began in Wuhan in December.
Beijing has also blocked or limited imports of Australian coal, beef and other goods and announced an investigation into whether wine was being sold at improperly low prices.
China is Australia’s most important trading partner, with agricultural shipments alone totalling about A$16bn in 2018-19. The nation sealed a comprehensive free-trade agreement with Beijing in 2015 but a ban on controversial telecoms firm Huawei and anti-foreign interference laws have cooled relations.
Australian wine exporters, which sell A$1.2bn of wine to China every year, have been notified by Chinese importers that their wine will not be cleared through Chinese customs from Friday.
Agriculture minister David Littleproud said he would “work with the Chinese authorities to investigate and resolve these issues".
A Chinese foreign ministry spokesman said: "We hope Australia can do more things conducive to mutual trust, bilateral cooperation and the spirit of China-Australia comprehensive strategic partnership and bring the bilateral relations back to the right track as early as possible.”