Welcome back to another edition of your weekly Covid-19 Recap.
It is no exaggeration to say that hysteria has gripped Australia. If the empty shopping aisles didn’t give it away, then the recent movements in global stock markets has made it abundantly clear. Trump’s recent announcement of a 30-day travel ban on all flights between the US and 26 European countries has resulted in the ASX 200 entering “bear market” territory, meaning it has fallen over 20% from recent highs.
Panic selling shredded $232 billion in value from Australian shares this week. To put this in context, this would have been the worst fall in ASX history if it wasn’t for a late surge on Friday. Global markets have also followed suit, with the Dow Jones experiencing its worst single-day drop in value since Black Monday crash in October 1987.
In reaction, the Australian government has unveiled its $17.6 billion stimulus package to bolster the economy and instil some confidence in the shaken investors.
What does this mean for us?
Well if you’re receiving youth allowance, then the coronavirus may (quite literally) have a silver lining for you and your pockets. Reminiscent of the Rudd government’s “cash splash” of 2009, roughly 6.5 million Australians will be receiving a one-off cash payment of $750. This will target social security, veteran and other income support recipients and eligible concession card holders and aims to increase household spending from the most disadvantaged groups in the economy.
Small businesses will also see cash flow support to cover their expenses and encourage investment. Tax-free payments and wage subsidies will be made to cover the cost of employee salaries over the first half of the year (from 1 January to 30 June) aiming to safeguard Australian jobs. Deductions on the cost of installing assets will also be implemented to encourage business investment.
“Whether businesses have got the income and confidence to spend remains to be seen,” Commsec chief economist Craig James said.
It will be interesting to see how effective this stimulus package will be. While most agree cash handouts to welfare recipients made economic sense in boosting consumption and confidence, fiscal support for business investment has been hotly debated. Many economists warn businesses may not be able to respond to them because the thing holding back investment plans is a lack of underlying demand.