When it rains, it rains hard and it is those who cannot afford to stay afloat that find themselves trapped in the “economic tempest”.
Amidst Prime Minister Scott Morrison’s announcement of ‘social distancing’ restrictions on crowds greater than 100, it is inevitably Australia’s small businesses and casualised workforce that bear the brunt of the economic downturn. It is clear that pessimistic sentiments are running high as Australia seems to be unable to swim away from the rip-tide of predicted recession.
Relief for many Australians this week as welfare recipients can expect an additional $750 payment as part of the Federal Government’s second stimulus package of $66 billion. Another $100,000 grant has been promised for small businesses in an attempt to keep them afloat. A $715 million ‘relief package’ has also been revealed to keep national airlines airborne by waiving a constellation of fees and levies. However airsevice staff have not been left ‘flying high’, with 20,000 Qantas and Jetstar employees being stood down until May.
Good news in the Australian stock market was a mere drop in the ocean this week. As seen from the graph below, shares experienced a modest gain of 33.7 points for a 4816.6 close on Friday. However, the 13% fall on the S&P/ASX 200 benchmark index over the week surpassed the 10.9% tumble last week. On Wednesday, the major banks were hit with the brute force of interest rate cuts with Commonwealth Bank falling 10 percent to $59.72 and Westpac and ANZ sliding 11.8 percent and 12.5 per cent respectively.
Sourced: marketindex.com.au
It seems like now is the best time to address that gambling addiction! Coinciding with new social distancing policies, Crown Resorts suffered a loss of 11.2 percent to $7.28, as Australians find less time for entertainment and spending.
In other news, the Australian dollar hit a 17 year low this week, trading as low as 55.08 US cents after the Reserve Bank cut the cash rate to a record low of 0.25 per cent. Rates wander into the zero lower bound, whereby further rate decreases will have little effect stimulating the economy.
Sourced: tradingeconomics.com.au
“RBA’s move was made to address how to best support the Australian economy through the coronavirus crisis”
In reaction to this news, quantitative easing (QE) will be implemented for the first time in Australia. QE is a process whereby the RBA purchases government bonds and other financial assets from banks and pensions funds (secondary market), thereby flooding the system with liquidity. There are three reasons the RBA has resorted to QE.
- Inflation has not been near the 2-3% target band. Lowering the purchasing power of funds would be beneficial for the economy.
- Even before the coronavirus outbreak, global economic clouds were gathering and central banks around the world had taken their interest rates lower; Australia is just playing catch up.
- And finally, the RBA is starting to run out of interest rate ammunition to boost the local economy and take unemployment lower.
The coronavirus outbreak has become an economic existential threat. The virus, and its economic impact, is spreading faster than treasury departments can model the financial fallout.
As Ross Gittins suggested, “It’s the Coronacession”.
Sources
https://www.smh.com.au/business/markets/asx-posts-largest-weekly-fall-since-gfc-20200320-p54cd0.html