Australia's government said it would pump A$17.6 billion ($11.4 billion) into the economy to try to stop the coronavirus outbreak triggering a recession, as it weighed an extension of travel restrictions following a formal pandemic declaration. The country's first stimulus package since the 2008 global financial crisis, which helped Australia avert a recession then, illustrates the lengths the government will take to pare the economic impact of the outbreak.
Despite only affecting about 140 people in Australia so far, with three confirmed deaths, economists expect the outbreak, classified as a pandemic by the World Health Organisation, to cause a recession in the second quarter. The package will subsidise the wages of 120,000 apprentices, offer one-off cash payments for welfare recipients and give up to A$25,000 ($16,160) to small businesses, Prime Minister Scott Morrison said at a news conference in Canberra on Thursday.
Australia has not experienced a recession
"I know many Australians are anxious about this and we do still have a long way to go, but be assured we are taking action and we do have a clear plan," Morrison said in a prime-time televised address. More than six million welfare recipients, notably pensioners and unemployed citizens, will get a one-off cash payment of A$750 from March 31, he added.
Speaking with the Prime Minister, Treasurer Josh Frydenberg said most of the package would be spent immediately, potentially boosting the economy by 1.5 percentage points in the second quarter. Australia has not experienced a recession, defined as two consecutive quarters of economic contraction, since the early 1990s. "The package won't supercharge the economy. Neither does it guarantee that the economy won't slip into recession. But it is a good first step," said Craig James, chief economist, Commonwealth Bank of Australia.
News of the stimulus came minutes before US President Donald Trump announced a 30-day ban on incoming travel from continental Europe, sending Australian stocks, which were trading down about three percent, tumbling to close down 7.4 percent.
Effects of the stimulus package remain unclear
The effects of the stimulus package remain unclear while the pandemic widens. "Whether a recession can be avoided is still an open question as the management of the COVID-19 health crisis dictates the economic fallout," said analysts from ANZ Bank in a note.
Further to halting to the disease spread, the Australian government said it would extend by a week existing travel bans on China, Iran, South Korea and Italy, which have reported the highest numbers of people with the illness, while an emergency health committee would review whether to place a travel ban on all of Europe.
The actor Tom Hanks said in a social media post that he and his wife Rita Wilson had tested positive for the coronavirus while in Australia where he was scheduled to shoot a movie. Hanks said they would be "tested, observed and isolated" as requested by the local health authorities. Ratings agency S&P said on Wednesday it expected Australia to fall into recession in the first half of 2020, but the government's strong fiscal position allowed for stimulus without threatening its 'AAA' credit rating.