With public and private forecasters warning the economy is likely to contract in the March quarter, pressure has grown on the government to deliver its own financial boost.
Mr Morrison said Treasury and relevant government agencies were working to deliver “the boost that we believe will be necessary” with a targeted plan, but stressed a health crisis was different from a global financial crisis.
“This is a health crisis, which has had serious disruptive impacts on the travel movement of people and of goods around the world. And that obviously disrupts supply chains and has a suppressing impact on demand. And what we are focusing on is jobs, cash flow and investment,” Mr Morrison said.
The package, likely to be released by the middle of March, will be geared towards helping businesses maintain their cash flow so they can retain staff. Support is likely for sectors particularly exposed to the virus, such as tourism and education, as well as exporters.
Small businesses affected by the summer’s bushfires have already reported difficulties keeping workers and the government is looking at ways to ensure firms have enough staff on hand once the the economic impact of the coronavirus fades.
Mr Morrison in effect ruled out infrastructure projects, noting the government had already brought forward $4 billion of work late last year and arguing it would take time to put any more in place.
Announcing the rate cut to 0.5 per cent on Tuesday, RBA governor Philip Lowe said the coronavirus outbreak had clouded the near-term outlook for both the global and Australian economies.
“The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors,” he said. “The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected.”
US President Donald Trump used Twitter to back the RBA’s move while castigating his own central bank for not taking action. “Australia’s Central Bank cut interest rates and stated it will most likely further ease in order to make up for China’s Coronavirus situation and slowdown,” he said. The US Federal Reserve meets in a fortnight and is expected to cut rates there by up to half a percentage point.
Dr Lowe left open the option of a further rate cut, which would take the cash rate to 0.25 per cent, below which the RBA has said it would have to consider quantitative easing policies to boost the economy.
Markets believe that last cut could come as early as the RBA’s next meeting in April, just five weeks ahead of the federal budget, which is expected to show the government abandoning its promised surplus.
The December-quarter national accounts, to be released on Wednesday, are likely to show the economy was already soft before the advent of the fires and coronavirus.
Weaker than expected export and government spending figures forced analysts on Tuesday to downgrade their expectations for the December quarter, with many tipping growth of just 0.3 per cent. That would take annual growth to a modest 1.8 per cent.
AMP Capital chief economist Shane Oliver, who believes the national accounts will show zero growth, warned the economy might have been going backwards.
“Given the rising risk of recession, further policy stimulus is clearly required. In fact, if December-quarter growth turns out to be negative, a recession may have already begun,” he said.
He said there should ideally be more of a focus on fiscal stimulus but “in the absence of that in the near term, all the pressure is on the RBA”.
KPMG chief economist Brendan Rynne said while the RBA had been obliged to cut rates, there was “no doubt that this is bringing Australia into uncharted and potentially dangerous waters”.
He tipped modest economic growth of 0.5 per cent for the last quarter of 2019, but said this would “begin to look impressive by the time we see the [first quarter 2020] figures”.
Shadow treasurer Jim Chalmers said he was “concerned” and “worried” about how the economy performed in the last quarter of 2019 and warned those relying on interest from deposits had taken a hit from falling rates.
“Savers have copped it in the neck from these last four interest rate cuts and one of our concerns about leaving the Reserve Bank to do all the heavy lifting has been that savers are punished,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.