All in to Save Australia’s Economy?

Bear Market, Commodities, Politics, Stocks Apr 1, 2020 / Reading Time: 2 mins
By Aditya Kapdi Reading Time: 2 mins

All in to Save Australia’s Economy?

The coronavirus pandemic has crippled economies and financial markets globally. Not only is there immediate effects of the viral outbreak, but the mid to long-term ramifications can be disastrous. It is estimated that last week’s US jobless claims of 3.28 million will most likely be quickly surpassed as unemployment claims may rise to a figure between 3.5-5.25 million. Locally, the Morrison government aimed to address the growing concerns of unemployment by unveiling a $130 billion wage subsidy package to prevent over a million workers from losing their jobs.

To date, the federal government spending is far more than the $130 billion wage subsidy. Initially, the first package of $17.6 billion was announced on March 12 which aimed to provide immediate stimulus to the Australian economy to counter the possibility of a recession. The Reserve Bank of Australia (RBA) also announced a $90 billion three-year funding facility to help banks continue to lend to business on March 19. On March 22, the federal government announced a $66 billion stimulus package to keep businesses afloat and running and their workers employed. The most recent $130 billion federal government economic stimulus package will provide a $1500 subsidy per employee to defuse the rising tensions of unemployment and prevent millions of people from losing their jobs due to the coronavirus pandemic.

Analysts and economists believe that this subsidy package will undoubtedly prevent unemployment rate from rising as it would have without the stimulus package. That being said, it will come as no surprise as analysts forecast the unemployment figures to reach double digits by June 2020 with a possibility it could reach around 20%.

Figure 1: Australia Unemployment Rate

Analysis of previous recessions may also provide some insights into the unemployment trends that could be expected. The recession in the early 1980’s saw unemployment rise from 5.5% to 10.5% over the span of a couple years. But it took more than 6.5 years for the unemployment rate to steadily decrease to its original level. Australia’s most recent recession in the early 90’s saw unemployment rate increase to a peak of 11.2%. It took more than 10 years for the unemployment rate return to its pre-recession level of 6%. If history is to repeat itself, Australia may most likely follow a similar trajectory as that of previous recessions where initial unemployment rate increases significantly but this elevated level is sustained for a period that may debilitate an entire nation.

Blog article written by Aditya Kapdi, Research Analyst, Maqro Capital