The attached note takes a look various questions in relation to the impact of the coronavirus on the economy and the response to it, including: why does a big part of the economy have to go into “hibernation”? how long might it be for? how big will the hit to the economy be? what does it mean for unemployment? why is it so important for governments and central banks to protect businesses and workers? can we afford all this stimulus?
The key points are as follows:
- Significant government support is essential to enable parts of the economy to successfully hibernate.
- This will be financed by borrowing and is affordable given Australia’s relatively low public debt and low borrowing rates.
- Central bank support to keep financial markets functioning properly is also essential and quantitative easing is part of this.
- We are more likely to see a U-shaped recovery than a V or L.