MANX — The economy will be in a “relatively stable” position through 2019-20, the government said Friday, but the economy is likely to contract in 2019-2020 and that could leave some jobs unfilled.
The Reserve Bank has slashed the government’s interest rate by 0.5 per cent to 0.25 per cent and that means the government can borrow at just a quarter of its annual budget.
Advertisement The government will continue to provide support to small businesses, particularly those employing fewer than 10 people.
The Reserve Bank cut the rate last week to 0 to 1 per cent.
But the central bank also has the power to cut the Reserve Bank’s policy rate by a further 0.1 per cent, meaning that it can also increase the rate for the first time in two years.
The central bank cut its policy rate for 2018-19 from 0.75 per cent of GDP to 0 per cent on Thursday.
That was the lowest rate since March 2009.
However, it will cut rates for 2019-2018 and 2020-21 to 0 and 0.3 per cent respectively.
The RBA has cut its interest rate for 2019 by 0 to 0,25 per 1pc.
The RBA will be required to keep a balance sheet of $3.5 trillion by March 2021.
“We expect the economy to contract for 2019, which will make the outlook for the outlook over the longer term somewhat uncertain,” said RBA Governor Michael Woodford.
“However, the Reserve will continue providing support to medium and small businesses in 2019, including through direct grants to companies, loan guarantees and through loan modifications.”
The economy is expected to contract by 0,9 per cent in 2019.
Economy is expected shrink by 0 per 1 percent in 2020, but that is expected as the economy rebounds from the effects of the cyclone, and to rebound by 1 per 1 cent in 2021.
The Reserve will also continue to support some of the economy’s more vulnerable sectors, including financial services, insurance, real estate, retail trade, and tourism.
“The RBS is committed to supporting all our stakeholders and we are looking forward to the work they will do over the coming weeks and months to get the economy back on track,” Mr Woodford said.
“But we are also aware that there are some challenges in our financial system and our banking system and there are many areas of the business cycle where we will need to act in order to get our economy back to growth.”
The RBC’s chief economist, Mark Zandi, said the impact of the central banks cut will have a greater impact on small businesses.
“They’re still going to be the main drivers of employment and growth in the economy, and so they will be particularly vulnerable to the effects, especially with the cyclical downturn,” Mr Zandi said.
In the first quarter of 2019, the number of people employed in the private and public sectors was expected to be 0.8 per cent lower than the previous quarter, which would be the second-lowest since 2009.
The rate cut means that there will be a net loss of 0.4 per cent for the public sector and 0 per 0.2 for the private sector in 2019 and 2020.
Despite the central bankers cut, the RBA said that it will maintain the support it has given to some of its biggest clients, including multinationals, large employers and banks.