Australia's last recession, usually defined as two consecutive quarters of negative growth, occurred in 1991 under prime minister Paul Keating. The chances of a recession this year are increasing, with Treasury secretary Steven Kennedy revealing the department expects a substantial hit from both the virus and the summer's bushfires. Combined, they are expected to strip 0.7 per cent from growth in the current quarter. He said it was too early to tell whether the impact of the virus would continue into the June quarter, while admitting it was a substantial risk. Dr Kennedy, whose department is working on the government's coronavirus stimulus package, made it clear a budget deficit was in line with prudent economic management. "In terms of fiscal policy, allowing the fiscal position to temporarily deteriorate as a result of this shock is entirely consistent with a medium-term fiscal framework that supports sustainable patterns of expenditure and taxation over the medium term," he told a Senate committee.

Loading This statement is one of the strongest indications to date that the government will give up on its "back to black" surplus plans in favour of stimulating the economy to offset the epidemic's impact. Shadow treasurer Jim Chalmers said a fiscal response needed to be "rolled out quickly" to handle the acute challenges facing the economy. "We need to make sure that this government gets the size and the speed of their package right. They've sat on their hands for too long already. We need to make sure that it's not too little, too late," Mr Chalmers said. The government's stimulus package is expected to be launched on Wednesday. Treasurer Josh Frydenberg said it would be "targeted", "scalable" and "designed to keep Australian businesses in business and Australian workers in jobs". It is expected to focus on small and medium businesses, self-funded retirees and the tourism sector.

The Prime Minister said he would make "the arrangements we need to ensure we can get those things in order". Parliament is due to sit again on March 23 and has a six-week break over April and May. Loading Replay Replay video Play video Play video This package is the question mark hanging over the size of the deficit, Deutsche Bank economist Phil O'Donaghoe says in a note to investors. He is projecting a cash deficit of $25 billion for 2019-20, with no return to surplus until 2021-22, which would be after the next federal election. "An aggressive stimulus, deployed now, ought to allow the underlying cash position to improve in 2020-21 ... headwinds will see next year's budget also record a modest deficit of around $5 billion," he said. Commonwealth Bank of Australia senior economist Belinda Allen said there were downside risks to the bank's GDP estimate for the first quarter of 0.1 per cent, and a negative figure in future was a "distinct possibility".

Loading Ms Allen said: "The question now is not whether the budget will be in surplus or deficit, but how big the deficit will be." Australian Council of Trade Unions secretary Sally McManus warned there were 3.3 million people without access to paid sick leave. Some of those could be forced to stay at home to prevent the spread of the coronavirus. "Workers without access to paid leave will be placed in the impossible position of choosing whether to attend work while suffering symptoms, possibly infecting others, or self-isolating without any means to pay their bills," Ms McManus said. Capital Economics senior economic adviser Vicky Redwood has warned that in a situation where people self-isolate more than expected and governments take "more draconian" measures around border control, the global downturn could look similar to that in China.