Australia expects the shock caused by the coronavirus lockdown to dwarf the impact of the global financial crisis, with the economy set to shrink by 10 per cent in the second quarter.

Josh Frydenberg, Australia’s treasurer, said on Tuesday that the restrictions introduced to minimise the spread of coronavirus would cause unemployment to double to 10 per cent and send economic activity falling by about A$50bn ($32bn) over the period.

Almost 1m people have lost their jobs since March 14 following the temporary closure of businesses such as pubs, restaurants and retailers owing to social distancing rules.

A third of people working in accommodation and food services, the worst affected sector, are now unemployed. Young people have been hit hardest, with 18.5 per cent of employees under 20 losing their jobs, according to government data.

Mr Frydenberg said the nation’s success in suppressing the virus provided Australia with an opportunity to ease restrictions in a way that would minimise the health risk.

“We must get people back into jobs and back into work. For every extra week the current restrictions remain in place, Treasury estimates that we will see close to a A$4bn reduction in economic activity from a combination of reduced workforce participation, productivity and consumption,” he said.

The economic disclosures came as the government discussed plans to establish a “trans-Tasman travel bubble”, which would enable the resumption of flights to New Zealand without the need for passengers to quarantine for two weeks.

Australia has not imposed the strict lockdown that has been implemented in New Zealand and many European countries. This has enabled construction, mining, agriculture and some parts of the retail sector to continue operating. Nevertheless, it has managed to suppress the spread of the virus, reducing the rate of daily infections below 1 per cent over the past two weeks.

Mr Frydenberg said if Australia’s social distancing restrictions had been increased to the type of eight-week lockdown seen in Europe, the hit to gross domestic product would have doubled to 24 per cent of GDP in the June quarter.

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Australia’s conservative government entered the Covid-19 crisis in robust financial shape with a net-debt-to-GDP ratio at just under 20 per cent and forecasting the budget would return to surplus.

This has enabled it to spend A$200bn in direct support for businesses and employees, as well as A$120bn in loans, guarantees and other measures to support the financial system, which together are equivalent to 16 per cent of the size of the economy.

Mr Frydenberg said the government would follow a reform agenda to help boost the economy following the health crisis, which would be based on open markets and the private sector leading job creation, rather than markets.

“When this corona pandemic is under control, I believe we will be like a phoenix, rising from the ashes,” said Mr Frydenberg.

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