Worst may be over

Matthew Peter

New research released by Queensland-based institutional investor QIC has suggested that the worst of the global financial crisis may be over.

Discussing the new research, QIC said there were signs emerging that the pace of contraction in the global economy was abating following significant fiscal stimulus.

It said its research indicated that the Obama Government's fiscal package in the US would boost gross domestic product (GDP) growth by 0.7 percentage points in 2009 and by 1.3 percentage points in 2010 while, in Australia, the Rudd Government's package would boost GDP growth by 1.1 per cent in 2009 and 0.6 per cent in 2010.

The research analysis said implementation of the fiscal packages had coincided with a sharp improvement in investor confidence following the slump experienced after the failure of Lehman Brothers. Equity market volatility had fallen to its lowest level since September 2008 and share markets have surged by 35 per cent since March 2009.

Commenting on the findings, QIC chief economist Matthew Peter said if the fall in confidence that occurred in late 2008 was to reverse, the impact of fiscal packages would be magnified.

Peter said history suggested that an improvement in confidence could occur very quickly and that the opportunity cost to investors who took a wait and see approach could be significant.

However, he cautioned that large fiscal packages had clouded the longer-term outlook, as governments would eventually need to raise taxes and lower spending to stabilise the build-up in public debt.