More stimulus will be needed for recovery after pandemic, economists say

The government’s debt agency, the Australian Office of Financial Management, on Friday said it would start selling at least $5 billion in debt a week as its seeks to cover the nation’s budget shortfall.


But the Scope survey participants believe once the pandemic has finished, even more government support and debt will be necessary.

Industry Super chief economist Stephen Anthony said all governments should be planning now for a major discretionary boost led by policies to lift private sector capital spending.

“What is needed right now is a measure of old-fashioned supply side planning. The idea is to build future capacity today, combined with initiates to shore up private [capital expenditure],” he said.

“The intent is to help the economy rebound and recover with vigour.”

Monash University economist Jakob Madsen said Australia’s reliance on a few key exports to a small number of countries was being exposed by the virus outbreak.

He said the government would have to look at ways to diversify the economy to stem the severity of future downturns.

“Particularly through venture capital, the government needs to give priority to [research and development] intensive sectors such as high-tech manufacturing, pharmaceuticals etc,” he said.

“Australia is seriously lagging behind the other OECD countries in the high-tech producing sector.”

Victoria University Associate Professor Janine Dixon said: “Longer term, serious thought needs to be given to improving self-sufficiency in critical sectors, including pharmaceutical products and medical equipment”.

Victoria University economist Janine Dixon believes the Australian economy will have to diversify once the pandemic is over.Credit:Dominic Lorrimer

Also backing a “government growth package” as the economy recovers is BIS Oxford Economics chief economist Sarah Hunter, who said this could help bring forward shovel-ready capital projects and planned maintenance.

She said it would be a “powerful catalyst for the economy [and] in addition to boosting demand, it would also signal to firms across the supply chain that demand will be there, so they can re-open and begin to rebuild”.

Independent economist Saul Eslake said the government may need to consider an additional fiscal stimulus package to ensure a decent recovery.


He said households and businesses that had skipped paying debts during the depths of the crisis will face higher repayments for longer periods, which could weigh on spending. Some sectors of the economy, such as tourism, may suffer a long-term effect as consumers remain wary of undertaking some activities.

“This would be the time to be bringing forward infrastructure investments, providing more generous (but temporary) investment incentives, perhaps some temporary incentives for house-building or for tourism,” he said.

RBC Capital Markets chief economist Su-Lin Ong said governments had to start looking now at ways to reskill workers for the post-pandemic world, including the provision of business incentives to develop their staff.

“COVID-19 may well permanently change the way we work. It will be important for labour to be equipped for changes and have the necessary skills for the future,” she said.

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