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‘Overstated’ stimulus won’t save the economy

Lachlan Maddock
— 1 minute read

An unprecedented policy response will only be enough to “partly offset” the economic damage of the coronavirus outbreak, according to new analysis from a big four bank.

While the federal government has already unleashed billions in its stimulus packages – including asset depreciation programs for business and financial support for people out of work due to the outbreak – it’s unlikely it will be enough to prevent the worst. 

“It will make an important difference but will not offset the economic consequences of the pandemic,” ANZ senior economists Cherelle Murphy and Catherine Birch said in a note.

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“We maintain expectations of a mid-2020 recession. The risk is that it could be deeper and longer than currently anticipated as shutdowns and border closures push economic growth down another notch.”

Some of the measures announced in the stimulus packages are likely to miss their mark – particularly those aimed at improving household income. While low-income earners are usually more likely to spend, consumer confidence is at a six-year low amidst “considerable uncertainty” – and a large proportion of the additional income will probably be saved instead. 

The $188.8 billion figure used by the federal government to describe its stimulus package is also “vastly overstated”. 

“This is a material exaggeration, as it counts the provision of lower cost credit at face value,” the economists wrote.

“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.”

The economists are also concerned that bailout measures could also save unprofitable businesses – something that will only become obvious in the post-COVID-19 economy, and which will continue to “hamper growth and productivity” across the economy for years to come.

 

‘Overstated’ stimulus won’t save the economy
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