It’s Time to Kill This Deficit Bogeyman

Australia went into the coronavirus calamity with an economic record that was the envy of the world — a three-decade run without a recession. Now there's a risk that any strong recovery will give policy makers a false sense of security. This would be a grave misreading of the situation. The worst decision they can make would be withdrawing government support too quickly.

The damage from the lockdown is staggering. Bloomberg Economics expects gross domestic product could drop 6% this year, and doesn’t see activity returning to pre-virus levels for a couple of years. This pain is nowhere more evident than in the labor market: More people lost their jobs in April than any other month on record. The jobless rate would have been even higher if not for the droves of people no longer looking for work. Government figures Wednesday showed a slide in GDP in the first quarter, making a recession a certainty, given the collapse of activity in the current quarter. The central bank anticipates unemployment will climb to double-digits. And while acknowledging some signs of improvement this week, the Reserve Bank of Australia was adamant that stimulus will be required well into the future.

RBA Governor Philip Lowe has been doing his part. He kept the benchmark interest rate near zero Tuesday and reiterated a pledge to buy enough government debt to keep the yield on the three-year bond at 0.25%. It's a measure of the program's success and the stabilization of markets that the central bank could dramatically taper its bond purchases in May. This form of quantitative easing, known as yield curve control, was speedily enacted in March when Covid-19 cascaded through the world economy and financial markets buckled.