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Kevin Rudd - Source: Reuters -
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Australia's ailing economy got a double dose of desperately needed stimulus on Tuesday as the government pledged billions in new spending to avoid recession and the central bank cut interest rates to record lows.
"Australia is facing an unfolding national and international economic emergency," said Prime Minister Kevin Rudd in announcing a $AU42 billion stimulus package to protect the Australian economy from the global financial crisis.
The plan includes $AU28.8 billion for infrastructure, schools
and housing, as well as $AU12.7 billion cash payments for low and
mid-income earners to be paid in March, 2009.
Citing the grimmest global outlook in many years, the Reserve Bank
of Australia (RBA) cut its key cash rate by a bold 100 basis points
to 3.25%. That brought its easing since September to a massive 4
percentage points, and investors were counting on further easing to
2.0% or less by May.
"The RBA may want to judge what impact these cuts and the stimulus package has on the economy before moving further, but still, it would rather cut too much than not cut enough," said Michael Blythe, chief economist at Commonwealth Bank.
Australia's stimulus spending announced since September 2008 now totals $AU78 billion or nearly 8% of gross domestic product, and adds to a raft of packages developed in major economies, including $US819 billion in the United States.
The extra spending and deteriorating global financial conditions meant the government budget would fall into deficit of 1.9% of GDP in 2008/09 and 2.9% in the following year.
Rudd said his stimulus moves would stave off recession in the $AU1 trillion export-driven economy, but not everyone agreed.
"Its not enough to ward off a recession. Nothing Australia will do will stop recession here because it is recession everywhere," said Chris Richardson from Access Economics.
Six of Australia's top 10 trading partners are already in recession. Japan's exports fell by a third in December, and South Korea this week reported a similar drop for January.
The government on Tuesday more than halved its earlier growth forecasts and now predicts the economy will expand by 1% in 2008/09 and by 0.75% the following year.
But Rudd will be hoping he's right as the government faces an election in late 2010 and needs to avoid recession and save jobs to win a second term.
Rudd's stimulus package reinforces his political focus on
families, education, the environment and homelessness.
