The impact of COVID-19 on global economy is regularly being compared to the Global Financial Crisis, one of the most large-scale financial crisis in recent history, though a distinct contrast is quickly shaping up between the two.
In a new research brief released today by the United States Studies Centre, Non-Resident Fellow David Uren conducts an in depth analytical comparison of US and Australian government responses to the Global Financial Crisis of 2008/09 and the current COVID-19 pandemic. Mr Uren closely examines the use of monetary policy and emergency packages, and what else governments will likely need to do to soften the blow of the current crisis compared to their response during the Global Financial Crisis.
“The big difference between the responses to the COVID-19 crisis and the GFC is the absence this time of infrastructure programs intended to generate employment,” Uren says.
“While emergency measures have been cast as temporary, there is likely to be some continuing pressures to extend them, even if the direct virus impact is relatively short-lived. Despite the government’s efforts, there will be some permanent destruction of businesses and lasting unemployment.”
- The two crises are very different; the global financial crisis was caused by a shock to the financial system, shattering both business and consumer confidence, while the COVID-19 crisis has resulted in a government-ordered shutdown of large sections of the consumer economy.
- Governments in both Australia and the United States are spending twice as much to soften the impact of the COVID-19 pandemic as they spent in packages following the Global Financial Crisis.
- Despite differences in political systems, both Australia and the United States have focussed emergency packages on helping businesses to survive the loss of sales and assisting those who have lost their jobs.
- The budget spending this time is concentrated over the next 12 months whereas following the financial crisis, spending stretched over four years. There may be pressure for further stimulus spending if the recovery in employment takes longer than expected.
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