Australia steps up recession fight with new stimulus plan and interest rate cut

Australia steps up recession fight with new stimulus plan and interest rate cut
The Australian government has unveiled a second multi-billion dollar stimulus package that it hopes will lift the country out of a deepening slowdown and protect-against a full-blown recession.

By Bonnie Malkin in Sydney
Last Updated: 8:37AM GMT 03 Feb 2009

Kevin Rudd, the prime minister, announced the $42bn plan just hours before the country's central bank, citing the grimmest global outlook in many years, cut interest rates by 1 per cent to 3.25 per cent - its lowest level in 45 years.
The stimulus package, which includes $28bn for infrastructure projects and school improvements, will send the budget into the red for the first time in nearly a decade.
Mr Rudd's government is mirroring the action of most across the world as politicians increase their collective efforts to prevent what's already a deep and global downturn getting worse.
The package comes on top of one launched late last year worth A$10.4 billion ($7.4 billion) and underscores the threat to Australia's resources-based economy, which has shuddered to a near halt since the worldwide financial turmoil began.
Many analysts believe the economy will enter a recession in the next quarter and not start to show signs of recovery until the end of the year. Mass job losses are expected, especially in the vulnerable mining sector.
"The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionaru forces coming from abroad, " Glenn Stevens, the Governor of Australia's central bank said in explaining the decision to lower the key interest rate to 3.25pc.
The news prompted the Australian dollar to rise against the US dolar and saw the benchmark S&P/ASX 200 Index clim almost 1pc to 3522.6.
Those gains were seem across Asian stock markets as news of Australia's new measures were added to by Japanese plans to buy shares held by Japanese banks. In Tokyo, the Nikkei 225 was up 2.3pc on the prospect that the Bank of Japan would help Japanese banks improve the state of their balance sheets. It said it would purchase up to one trillion yen worth of stocks through April 2010.
The Australian initiatives, spread over four years, include building thousands of new houses and school rooms, and environmentally friendly measures such as providing householders with free home roof insulation. It also features cash bonuses to low and middle-income earners that the government hope will be ploughed back into the economy, rather than saved.
In a move aimed at getting Australians to spend some money, more than half Australia's population of 21 million will be eligible for A$950 ($600) tax bonuses or grants. The spending will plunge the annual budget into a A$22.5 billion ($14.2 billion) deficit — 1.9 percent of gross domestic product — for the current fiscal year ending June 30, the prime minister said.
"Nobody likes being in deficit and I don't like being in deficit at all," Mr Rudd said. "This is not a question of choice. This is what we are required to do."

http://www.telegraph.co.uk/finance/markets/4443093/Australia-steps-up-recession-fight-with-new-stimulus-plan-and-interest-rate-cut.html