Coronavirus stimulus package ‘like firing a bazooka’

The government’s fiscal ‘bazooka’ aimed at defending the economy from recession over the first half of the year is likely to be effective, economists said.

Deloitte Access Economics partner Chris Richardson said convincing Australians that a ­recession was not likely would go a long way to inoculating the economy. Picture: AAP

The federal government’s fiscal “bazooka” aimed at defending the economy from recession over the first half of the year is likely to be effective, economists said, even as they highlighted the difficulty of modelling the impact of a rapidly evolving health crisis.

Scott Morrison on Thursday morning announced it would spend $17.6bn over five years in a much-anticipated package of stimulus measures aimed at cushioning the economic impact of the coronavirus pandemic.

Economists concede the hit to tourism and education exports as a result of the China travel ban will drive a contraction in GDP through the first three months of the year. The spread of the virus around the world in recent weeks has sparked fears this slump will extend into the June quarter, ­ushering in Australia’s first ­recession since 1991.

The stimulus measures were aimed squarely at boosting business and household spending in the three months to June, with just shy of $11bn to be spent in the quarter, including a $750 handout to pensioners and welfare recipients and one-off payments of up to $25,000 for small and medium-sized businesses. That injection over the coming three months is equivalent to 2.2 per cent of quarterly GDP.

A day after a key measure of consumer sentiment collapsed to its second worst level since the global financial crisis, restoring confidence was a key objective for the government, economists said.

Deloitte Access Economics partner Chris Richardson said convincing Australians that a ­recession was not likely would go a long way to inoculating the economy from the worst of the coronavirus’s impact.

“These are really big bucks, and this is fast money too. A good chunk of it flows to the poorest Australians, who are the most likely to spend it,” he said.

“You can’t guarantee all will be spent, but (the package) is deliberately designed to give it the best possible chance of being spent.

“We don’t know how big a challenge this will be, but we do now know the government is firing a bazooka at it.”

Mr Richardson estimated the stimulus measures would add 1.4 per cent to GDP in the three months to June.

GRAPHIC: $17.6bn stimulus package

CBA senior economist Gareth Aird described the package as “significant” and said his initial assessment was that it appeared “large enough to fend off a technical ­recession”. “That alone will provide a boost to household and business confidence, which is clearly rattled at the moment,” Mr Aird said.

Not all experts were convinced the measures would prove sufficient. Westpac chief economist Bill Evans said he doubted businesses and pensioners would spend the additional income, given the already dour mood, and subdued levels of consumption and investment. He estimated the stimulus package would add only 0.4 percentage points to June quarter growth.

UBS chief economist George Tharenou agreed the economy would contract for two consecutive quarters, as the deteriorating mood would likely see more of the government money saved than spent, blunting its impact.

Judging whether or not the government measures as announced would prove enough was complicated by the rapidly evolving nature of the health crisis.

“At the moment no one really knows what peoples’ day-to-day lives will look like in a month’s time,” Mr Aird said.