Date : 23/10/2020

Budget Expansion – Volume II

Private sector led recovery

In our first volume, we wrote about how consumers are set to benefit from the new budget. Now, lets dwell into how it affects certain sectors and businesses. The ASX closed 1.2% higher once the budget was unveiled. Interest rates are low and will remain low in a bid to boost economic activity. We also forecast further reduction in interest rates. The stock market usually benefits from an economic stimulus as it may increase demand.

Infrastructure

The government plans to spend an additional $7.5 billion on infrastructure – taking the total spending to $11.3 billion. The increased spending is also estimated to fetch 30,000 new jobs. Infrastructure firms that construct roads, railways and bridges are set to benefit. Firms such as Transurban will benefit from the increased spending. Check out our report to know exactly why it benefits them.

Financials

The government has made it easier for financial institutions to lend money for both businesses and mortgages. The real-estate market is hence set to bounce back on the back of forecasted high mortgage activity. Banks have surged since the budget was unveiled. Our sector report on the state of the big 4 banks go into detail just how much of an effect this has in the short-term and if it is sustainable in the long-term.

Manufacturing

$1.5 billion has been set aside for the manufacturing industry. The government plans to invest in projects majorly in the medical products and F&B industry. R&D grants have been announced as well in a bit to push advancements in technology to the limit.

Retail

The government’s aim to increase consumer spending has a lot of benefits. One sector that will benefit the most if everything goes to plan and we see people spending more than saving is the retail industry. Consumer discretionary such as Coles are the safest bets for investors as demand does not fluctuate by much. Retail giants such as JB Hi-Fi may be benefitted from increase in sales – especially given the upcoming holiday season. E-commerce as a whole is set to take off in the country.

One of the biggest assumptions the Budget makes is that the worst of the pandemic is already behind Australia. But it is clear what the government is trying to do here. Economic recovery requires consumer spending – that means job creation and tax cuts. The education sector has been wounded massively due to the travel restrictions and it does not look like borders are set to open anytime soon for foreign students. The mining sector is heavily dependant on China. The relations between the two countries is stressed to put it mildly. The government’s strategy with the budget looks like they are trying to spur demand from within – which may turn out to be sustainable as well.

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