The United States House of Representatives has passed President Barack Obama’s $US825 billion stimulus package, designed to boost infrastructure projects and individual spending.
“The plan now moves to the Senate, and I hope that we can continue to strengthen this plan before it gets to my desk,” Obama said in a statement. The bill also contains billions in tax-cuts.
In New York, Wall Street reacted positively to the bill’s passage through the House, with the Dow Jones Industrial Average rising 2.46% .
Back home, the Australian sharemarket opened 1.9% higher today after the gains on Wall Street, but the mood of investors turned quickly.
The benchmark S&P/ASX200 index was up 23.6 points or 0.68% to 3,519.1 at 12.00 AEDT.
NAB shares gained 3.7% to $18.68 while BHP Billiton rose 5.1% to $31.37. The Commonwealth Bank gained 2.4% to $26.93 while Westpac rose 1.5% to $15.83.
The Aussie dollar increased slightly to US66 cents.
Australian Industry Group chief Heather Ridout says there is enough scope to slash interest rates to just 2% in response to the downturn.
Ridout also says the country will have a budget deficit of up to $20 billion, and will remain there during 2010 – but says heading into a deficit is the right thing to do.
“It would be irresponsible not to do that, and I think the government would get no thanks from the community or business for that,” she told ABC Television. “The international economy is in a parlous state, the world financial system is very scary.”
The Reserve Bank of New Zealand is already on the job, cutting its official cash rate by 150 basis points to just 3.5%. Governor Allan Bollard said the decision is a deliberate move to push the official rate into stimulatory territory.
“We’re probably still in recession and we will likely be there for the first half of this year,” Bollard said.
“The news coming from our trading partners is very negative. The global economy is now in recession and the outlook for international growth has been marked down considerably since our December Monetary Policy Statement.”
“Given this backdrop it is appropriate to take the OCR to a more stimulatory position and to deliver this reduction quickly.”
Data from the International Monetary Fund has supported Bollard’s position. Last night the organization downgraded its global growth forecast for 2009 to just 0.5%, the weakest rate since World War II.
IMG chief economist Olivier Blanchard said nations must work together to combat the financial crisis.
“Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy. A sustained economic recovery will not be possible until the financial sector’s functionality is restored and credit markets are unclogged.”