Australia's economy received a double dose of desperately needed stimulus today as the central bank cut interest rates to record lows and the government pledged billions in new spending in the hope of dodging a recession.
Citing the grimmest global outlook in many years, the Reserve Bank of Australia cut its key cash rate by a full percentage point to 3.25%. That brought its easing since September to a massive four points, and investors were counting on further easing to 2% or less by May.
The government waded in with a punchy package of $42 billion Australian dollars ($26.5 billion) in infrastructure spending and cash payments for low and middle-income earners, aimed at keeping Australia's A$1 trillion economy out of recession.
Stimulus spending announced since September 2008 now totals A$78 billion or nearly 8% of gross domestic product, and adds to a raft of packages developed in major economies, including $819 billion in the US and $586 billion by China.
Australia's economy has not suffered anything like the fallout seen in many developed countries and escaped an outright contraction, thanks in part to a still sound financial sector.
Calling his latest stimulus plan an 'extraordinary package for extraordinary times', Prime Minster Rudd said it would add 0.5 percentage points to growth in 2008/09 and between 0.75 and 1 percentage point the year after.
The government more than halved its earlier growth forecasts and now predicts the economy will expand by 1% in 2008/09 and by 0.75% the following year.
However, analysts doubt Australia can truly insulate itself from the global downturn. Six of Australia's top 10 trading partners are already in recession.
