06 Oct 2020
It seems that all the talk today is what is wrong with the world. No doubt, it is a time of extreme uncertainty with the virus, the upcoming U.S. election, tensions with China, climate change concerns, and what will happen when the mother-of-all government stimulus spending comes to an end.
While we have not got any better at avoiding economic crises (they are mainly a function of human nature), we have become much better at managing the fallout. True, we do not know the end result of the massive global policy stimulus and there will be people that criticize actions in hindsight (we all know there will be some consequences). However, the understanding of the need to act fast and provide massive stimulus when we have a big economic shock, rather than the inflexible approaches of the past, are a huge improvement in the practical management of economies.
You should not avoid recessions at all costs. Recessions are a part of capitalism to clean up the excesses. However, you must stop healthy businesses failing and getting into a loop of business failure, job losses, spending cuts, bank troubles, etc.. that can take forever to dig the economy out of as occurred in the Great Depression.
While we would not be comfortable completely relying on policy makers to do the right thing, we have a lot more confidence that they will take action these days, than they did in the past.
We are expecting stage 2 and stage 3 tax cuts to be brought forward (stage 2 to 1 July 2020, so backdated cuts), as well as tax incentives for business to invest and funds for infrastructure in the upcoming Budget. The Reserve Bank left rates unchanged today, at 0.25%, however it would not come as a surprise to see further rate cuts to 0.1%.
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