(Bloomberg) — Australia’s budget deficit will blow out to a post-World War II record amid a surge in spending to plug a virus-induced gaping economic hole, as the government sees the crisis spilling into next year.

The underlying cash balance will be a A$184.5 billion ($132 billion) shortfall in the 12 months through June 30, 2021, the government said in an economic and fiscal update released in Canberra Thursday. The deficit in the fiscal year ended last month was estimated at A$85.8 billion.

“These harsh numbers reflect the harsh reality we face. The economic outlook remains very uncertain. Recent events in Victoria are testament to this,” Treasurer Josh Frydenberg told reporters after the release. “These deficits reveal the real cost to the budget of protecting lives and livelihoods from the coronavirus.”

The government is making vast outlays to mitigate the impact of the virus. Having initially looked to bring it under control, Australia is now battling a spike in Victoria that has forced around 5 million people in the state capital back into lockdown. The impact on Victoria, which contributes about one-quarter of gross domestic product, is set to exacerbate the shock to the economy and nation’s finances.

Despite the burgeoning budget deficit, and net debt predicted to hit A$677.1 billion in 2020-21, at 35.7% of GDP, Australia’s balance sheet is comparable with developed world nations.

S&P Global Ratings said Australia’s AAA can absorb the growing budget deficit and expects the economy will begin to recover in 2020-21. Still, it added that the risks to the rating “remain tilted toward the downside.” Moody’s Investors Service similarly said it expects Australia’s Aaa rating to remain resilient, with the process of fiscal repair beginning in 2021.

The Australian dollar was little changed after the release and traded at 71.45 U.S. cents at 1:51 p.m. in Sydney. Yields on 10-year bonds were down 2 basis points at 0.87% while three-year yields traded unchanged 0.28%, compared with the central bank’s target of 0.25%.

The currency has climbed about 30% from its March low and overseas funds have shown a healthy appetite Australia’s debt, suggesting that despite the huge budget deficit, the nation is coping relatively well with the impact of the virus.

Other data in the report showed:

Unemployment is expected to peak at 9.25% in the fourth quarter of this yearGDP is forecast to contract 2.5% in 2020-21Inflation and wages are both seen rising 1.25% in fiscal 2021Iron ore, the nation’s largest export, is assumed to fall to $55 a ton at the end of this year. The spot price is currently trading above $100

The statement assumes that from Jan.1-June 30 2021 the international travel ban is lifted, but a two-week quarantine period is required of arrivals to Australia. This leads to the resumption of arrivals by temporary and permanent migrants, but at lower levels overall than normal, it said.

The Victorian border with New South Wales and South Australia is assumed to be closed until Aug. 19 2020, the document shows.

What Bloomberg’s Economists Say

“Aside from extensions to temporary pandemic support programs, the economic update today didn’t contain any significant new stimulus. The pandemic will pass, but the damage will remain – the response measures are temporary. Yet the Australian government will have to deal with the ongoing effects of the virus recession, forecasting an unemployment rate of 8 3/4% at the time when your support measures wind down.”

James McIntyre, economist

Australia suffered its worst day of coronavirus infections on Wednesday, with Victoria recording 484 new cases and warning numbers could rise further.

The government is attempting to buttress the economy as the Victoria outbreak prolongs state border closures and drags on activity. Prime Minister Scott Morrison announced Tuesday that the government will pump a further A$20 billion into supporting the jobs market as it extended a signature wage subsidy and additional benefits for the unemployed.

Finance Minister Mathias Cormann, in an interview with Bloomberg Television following the statement, didn’t close the door to bringing forward legislated tax cuts in the Oct. 6 budget.

Treasury also looked at a second-wave scenario for Australia and found that if similar large scale restrictions were reimposed this would likely reduce economic activity to similar levels as observed across April and May. It would therefore likely cost the economy at least A$2 billion per week compared to where it might have been without another round of infections.

(Updates with finance minister leaving open the possibility of bringing forward tax cuts in penultimate paragraph.)

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