It's an understatement to report that much has changed since our last Australian Market Update in February. At that time, COVID-19 was largely a China problem and, while I projected that it may impact us, I underestimated its global reach.
While the health crisis continues, we are now also seeing a considerable economic consequence for Australia due to the flow-on effects on international markets and its direct impact here. It will be no surprise to you that Australia is suffering much the same economic pressures as most other developed countries.
State and Federal Government instituted movement and social distancing restrictions from mid-March with international borders largely closed, and restricted travel across State borders for the first time in 120 years. We expect our international borders to be restricted into 2021. Enforced social distancing meant large numbers of businesses temporarily closed. Hospitality, leisure and entertainment sport sectors were hardest hit. These and other restrictions have helped Australia in containing the spread of the virus, although localised second wave outbreaks are emerging.
In response to the uncertainty, the Reserve Bank of Australia cut official interest rates to 0.25% and indicated that this will remain unchanged for an extended period. Australia's largest banks have also offered mortgage repayment deferrals to retail home loan borrowers to reduce default risk, and the Federal Government introduced a significant stimulus package - $260 billion or 13% of GDP - with increased unemployment benefits for individuals and payments to employers to maintain jobs and wages. Significant parts of that stimulus package have just been extended by 6 months.
Although these measures have temporarily helped with business uncertainty in retail, entertainment and manufacturing it has not stopped the Australian economy entering recession for the first time in nearly 30 years. The OECD has forecast that Australia's recession will see economic output contract by 5% in 2020 and while that is significant in itself it shows reasonable economic resilience when compared to other countries. At the time of this update, Melbourne has reintroduced hard lock downs to contain localised COVID outbreaks and recently opened State borders are now closed again. Australia's growth profile will be somewhat weaker given Melbourne's contribution to national confidence with growth lowered from -4% to -4.2%.
In the coming months, we expect that the inherent conservatism of investors in an uncertain market will tip toward activity as the market begins to live with COVID, and as the pressure to invest or divest outweighs the fear of inaction. We have already seen private equity and other fund buyers circling Australian deals particularly in the banking and leisure sectors. We recently advised the Administrator on Virgin Australia's $5 billion insolvency, negotiating a deal with Bain Capital. The changes announced in March by the Foreign Investment Review Board do not help inbound investors or transactions involving acquisition of an interest in an Australian entity, or business or land, require approval regardless of the size of the transaction and the review period has been extended to 6 months. These measures were expressed to apply for the duration of the COVID crisis. A new national security test, a draft of which is expected imminently, will come into effect on 1 January when the zero dollar screening requirement is expected to lapse.
The reality of the current market is that there will be significant distress. Over the last few years after sustained battering by regulators and the press, Australia's financial institutions have diminished appetite for formal insolvency actions, so there's likely to be significant restructuring opportunities. Retail and leisure are obvious opportunity sectors. Education, with over reliance on now diminishing foreign students is another sector to watch. Commercial property is yet another. Most sectors however are waiting for the full effect of the COVID-19 impact to play out.
In developments at Clayton Utz, on 1 July we introduced a new Senior Leadership Team with Emma Covacevich and Doug Bishop joining me as respectively Deputy Chief Executive Partners, responsible for Client and Markets and People and Development. In the immediate term we're all getting used to the interplay between our virtual and our actual offices. Like you, we're experiencing a new normality in servicing clients electronically and even the most Luddite-like of our partners are now au fait with BlueJeans, Skype, Zoom or Microsoft Teams. Surprisingly it's been working well and we're now thankful that pre the crisis over 65% of our people worked flexibly in any event.
Our focus remains supporting our clients as they respond to the challenges they're facing, working collaboratively with them as they reshape or rebuild or refocus. For our colleagues and friends overseas we hope you remain well and we hope you stay safe.