March 13, 2020

NAB’S View on fiscal policy: March 2020

Fiscal stimulus to support near-term growth, with more likely to come in the May Federal Budget.

The Commonwealth government has announced a substantial fiscal stimulus of $18b (0.9% of GDP) to support the economy in the face of the Coronavirus outbreak. The stimulus will be rolled out quickly, with a focus on supporting business investment, minimising possible job losses and boosting consumer spending with welfare recipients receiving a one-off cash handout at the end of March.  The measures provide a significant boost to near-term growth, with about $11b of spending adding an estimated 1.5pp to growth in Q2.  This is a welcome development, with fiscal and monetary policy now working together to address the economic impact of the Coronavirus.  Importantly, the measures can be expanded as needed and new policies are likely to be announced in the May budget, where there is ample scope for further fiscal support. For our forecasts, we are now more comfortable in forecasting a small rise in Q2 GDP after a travel-ban driven contraction in Q1. However, the magnitude and duration of the impact of the Coronavirus on both the global and domestic economies is extremely uncertain, as are public health containment measures. As a result, we still see further action on monetary policy with a 25bp cut in April and a move to yield curve control by midyear.

Find out more in NAB’S View on Fiscal Policy March 2020.