Powered by momentummedia
nestegg logo
Powered by momentummedia
nestegg logo
nestegg logo

 

 

Invest

‘Overstated stimulus’ won’t cushion economic blow

  • March 25 2020
  • Share

Invest

‘Overstated stimulus’ won’t cushion economic blow

By Cameron Micallef
March 25 2020

The economic impact of the coronavirus outbreak will only be “partly offset” by the recent injection of fiscal stimulus, according to ANZ Research.

Scott Morrison

‘Overstated stimulus’ won’t cushion economic blow

author image
  • March 25 2020
  • Share

The economic impact of the coronavirus outbreak will only be “partly offset” by the recent injection of fiscal stimulus, according to ANZ Research.

Scott Morrison

Earlier this week, Prime Minister Scott Morrison announced an additional $66.1 billion in fiscal support for businesses, casual workers, sole traders, retirees and welfare recipients in response to the economic shock caused by the coronavirus pandemic.

This builds on the government’s first round of stimulus, totaling $17.6 billion as well as the provision of up to $15 billion in funding to support lending to consumers and businesses, and the Reserve Bank of Australia’s (RBA) $90-billion TFF for the supply of low-cost credit.

However, according to ANZ Research, the fiscal support would not be enough to cushion the economic blow dealt by the virus.

In an analysis, ANZ Research senior economists Cherelle Murphy and Catherine Birch said the stimulus, which they said could create a budget deficit of at least $30 billion in 2019-20, would make an “important difference” but would not “offset the economic consequences of the pandemic”.

Advertisement
Advertisement

“We maintain expectations of a mid-2020 recession,” the economists stated.

“The risk is that it could be deeper and longer than currently anticipated as shutdowns and border closures push economic growth down another notch.”

According to their analysis, the federal government’s direct fiscal spending totals $27.5 billion (5.6 per cent of GDP) in the second quarter of the financial year (2Q20) and $37.6 billion (7.4 per cent of GDP) in 3Q20. This is in addition to state government support totaling $2.6 billion (0.5 per cent of GDP) in 2Q20 and $3.0 billion in Q3 (0.6 per cent of GDP).

The economists acknowledged that while the support is “material and unprecedented”, the real benefit to the economy is “overstated”.

“This response is to be commended,” the economists noted. “In our view, though, the $188.8 billion figure used by the federal government to describe its fiscal and balance sheet package is vastly overstated.”

The analysts continued: “This is a material exaggeration, as it counts the provision of lower-cost credit at face value.

“It is only the reduction in the cost of this credit that should count as stimulus. Even this much lower figure may overstate the amount of stimulus as business may not chose to access it.”

ANZ Research previously forecasts that subdued economic activity would likely trigger a sharp increase in the unemployment rate (currently 5.1 per cent), which the group said could hit 7.8 per cent by year’s end.

‘Overstated stimulus’ won’t cushion economic blow
Scott Morrison
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article

About the author

author image

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

more on this topic

more on this topic

From the web

Recommended by Spike Native Network

More articles

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.