Westpac senior economists Andrew Hanlan and Matthew Hassan said NSW, with its large hospitality, tourism and education sectors, was set to suffer a substantial economic blow.
They said NSW consumers, hamstrung by high levels of household debt, were already struggling before the advent of the crisis.
“The state economy will slump into recession, for the first time since 1990-91,” they said.
Westpac also argues Victoria, where 7 per cent of all jobs are connected to tourism, is facing a major downturn with overall output to shrink.
“Victoria’s large foreign education and tourism sectors make the state particularly exposed to the disruptions to international travel as well as to mass gatherings,” they said.
Western Australia, with its large mining sector, and Queensland with its extensive coal sector, are likely to do a little better than NSW and Victoria although both will see a sizeable reduction in overall economic activity.
All states, Westpac said, would be supported by the actions of the state and federal governments along with the move by the Reserve Bank to cut official interest rates to 0.25 per cent and extend $90 billion to banks to lend to small businesses.
The RBA board meets on Tuesday, the first time since its unprecedented action to deal with the coronavirus outbreak, with discussion to be dominated by how the economy is likely to perform over coming months.
The bank has already spent $30 billion buying state government bonds on the secondary market to drive down lending costs.
The federal government is also lifting its borrowing with the Australian Office of Financial Management selling $2 billion of debt on Monday that will be repaid in 2022. The interest rate on the debt was just 0.27 per cent.
The office is expected to sell $9 billion this week, and $60 billion by the end of June, as it seeks to cover the federal government’s extra spending to protect the economy.
Ratings’ agency Fitch, in research covering the fiscal pressures facing Australia and New Zealand, said on Monday both countries were confronting sharp falls in revenue and large increases in government spending due to the coronavirus pandemic.
It said the two countries had plenty of capacity to respond to the pandemic but warned there was an ongoing threat to the budgets of both nations.
“The scale of the shock facing both economies in 2020 is very large,” it said.
“Uncertainty remains over the extent and duration of lockdowns, both domestically and overseas (which will affect exports). There is also a danger that even after the spread of the virus is brought under control, re-emergence of infections could prompt a second wave of disruption.”
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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.