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Boost For Australian Economy
added: 2008-10-15

Two days after calming any concerns about the banks and financial institutions with a blanket guarantee and backing for the banks' offshore wholesale borrowings, the Federal Government has revealed a $10.4 billion injection into the Australian economy.

The move is aimed at giving money to those who need it, and those who will most likely spend it, especially in the lead up to Christmas.

The news means that retailers like Wesfarmers, JB Hi Fi, Harvey Norman, Woolworths and The Reject Shop are looking at more buoyant end of year sales than they were thinking of as late as yesterday.

If the experience of Harvey Norman is any guide, the boost will be welcome.

In a statement to the ASX, Harvey Norman said its like for like sales in its Australian stores dropped a sharp 4.7% in the four weeks to Sunday of this week, October 12.

That helped cut overall sales growth by two thirds for the September quarter.

Low and middle income families will receive a Christmas bonus of $1000 per child, single pensioners will get a $1400 payment and pensioner couples will be given $2100 under the spending plan. Carers will get $1000 per person they care for.

Prime Minister, Kevin Rudd, said it was to "strengthen the Australian economy in the face of the worst global financial crisis since the Great Depression".

The Government will double the first home buyers grant to $14,000 for those who buy an established home and to triple it to $21,000 for those who buy a newly built home.

Mr Rudd said the one-off bonus payments to pensioners and families would be made on December 8 and the housing bonus would apply immediately and for the rest of the 2008-09 financial year.

So its $4.8 billion one-off handout to pensioners and carers; $3.9 billion to Family Tax Benefit A recipients via a $1,000 payment for each eligible child, to be paid on 8 December; $1.5 billion to first-home buyers via a temporary additional $7,000 payment in 2008-09, taking the payment to $14,000, and an additional $14,000 to purchases of newly-constructed homes, taking it to $21,000.

The Prime Minister also committed to release the priorities for Government investment spending in infrastructure, education and health in December and a doubling of government funded training positions to 113,000 per annum.

The Treasurer also indicated that he expected to see the coordinated global response to the financial crisis continue, including with fiscal stimulus statements.

The National Australia Bank welcomed the package saying it was "both targeted and timely - as domestic economic activity is set to slow significantly during 2008/09".

The Bank's economics team said in a note to clients that "Nab estimates that this will boost spending and in turn overall GDP by around 0.5% in 2008/09.

"The current spending initiatives – for low income families and pensioners – should provide a significant boost to household consumption by over 1% around the end of 2008 and in the first half of 2009 – given that the majority is likely to be spent.

"Together with our forecast sizeable cuts in the cash rate by the RBA by early next year, the first home buyers grant is likely to be taken advantage of and in turn provide a small boost to new dwelling investment during 2008/09.

"That said, this package together with further infrastructure initiatives ahead were anticipated in our latest economic and financial forecasts released earlier today.

"Our forecasts assume that "real" public spending picks up to 5% in 2008/09 – allowing for some further initiatives as well as spending of "Future Funds".

"As a result of fiscal stimulus & the cyclical effects of slower growth etc, we estimate the Commonwealth fiscal position will move to a surplus of about $7bn in 2008/09 and into a small deficit of say $10bn in 2009/10.

"As a result, NAB continues to expect overall GDP growth to slow from about 2.5% in the past financial year to 1.5% in the current financial year (2008/09) - as the timely and target fiscal response helps to support domestic activity as well as mitigate some of the downside risks from the global financial turbulence."

AMP Capital Investors chief economist Shane Oliver said the stimulus package was likely to minimise the likely effects of a possible recession in 2009.

"It's a 50-50 call whether we'll see one or not - the risk is the December quarter or the first six months of next year," Dr Oliver said on Tuesday.

"The package may help head that off or ensure that any recession is a mild one.

"Whether it helps to stop a recession remains to be seen.

"There's no doubt it will help minimise the severity of recession."

Earlier in the day the National Australia Bank's monthly business survey showed a surprisingly confident business sector, despite the volatility seen on local and global markets in the past month and the intensification of the credit crunch into a credit freeze.

The NAB released its September survey yesterday morning ahead of the PM's announcement and it showed that business conditions rose 2 points to an index of -1 in September – but still 21 points lower than its recent peak in October 2007.

The NAB said business confidence did fall 1 point to -8 points in September, but in trend term both series were unchanged (at -8 and zero points respectively).

The NAB pointed out that the survey was taken in late September and early October during the turmoil over the US bail-out plan and growing lack of bank lending, but before the big 1% rate cut by the Reserve Bank a week ago today.

The NAB said that it now sees the RBA cutting rates further to 5% by early next year and with the cash rate falling to a low of 4.5%.

The bank said the survey "implies both demand and non-farm GDP in Q3 have fallen to round 2% (annualised)".

Global economic growth forecasts for GDP for 2009 have been lowered to 2.25% (with USA now at zero) and local GDP cut significantly (to 1.75% in 2009) in light of equity and commodity price falls and lower global growth.

"Despite more aggressive (fiscal) policy responses downside risk remain," The NAB said..

In the survey "trading conditions rose 4 points to +1 points, while profits also rose 2 points to -4 index points. Employment, however, fell by 2 points to -2 points (the third minor fall in the last four months) – indicative of a moderate labour shedding process.

"For the second month in a row the slight improvement in conditions was not broadly based. Once again there was a sharp improvement in mining while most other sectors were either unchanged or fell slightly.

"On confidence it was notable that mining confidence fell sharply (as commodity prices fell) while other sectors to experience falls included manufacturing and transport. Against that, confidence improved in retail and to a lesser extent wholesaling

"Consistent with a slowing economy capacity utilisation fell by another 0.7 per cent to 81.0 percent - the lowest level since October 2002. Forward orders fell another 1 to -9 points. Both these readings are clearly the lowest since late 2001.

"Annual wages growth edged down to 5.3% in September. Aggregate and retail prices both edged higher (up a point) in the year to September (3.6% & 3.3% respectively). Purchase costs continued to surge higher with the annual increase now 6.4%. "


Source: ABN Newswire

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