Australian Government Confirms Plans to Increase Infrastructure Spending to Revive Economy

Australian PM Scott Morrison has announced that the government will fast-track infrastructure spending projects worth AUD 3.8 billion in a bid to revive the slowing economy. Weakening consumer spending and home building have driven economic growth to the slowest levels in 10 years.

To combat the slide in GDP, the RBA has cut interest rates by 0.75% so far but has called for the government to increase spending on infrastructure to give the economy a boost. In a significant speech earlier today, Morrison assured markets that the government will inject investment on road and rail projects nationwide over the next four years.

In an interview with Channel 7, Australia, Morrison stated, “All these projects will provide important extra support to the economy”. This is an important turnaround from his earlier stance when he refused to accelerate spending, and focusing the government’s efforts on delivering a budget surplus instead.

Soaring iron ore prices are expected to support the government’s fiscal strategy even as the infrastructure spending is likely to support the RBA’s decision to keep interest rates steady instead of cutting them again. Will this prevent the RBA from bringing rates down to 0.5% in the near future?