Australia recession risk growing

The Straits Times
Nov 19, 2008 | 12:15 PM
Aussie recession risk growing

SYDNEY - AUSTRALIA is at increasing risk of following other major economies into recession in 2009, a survey released by the Westpac-Melbourne Institute indicated on Wednesday.

The government has said Australia will experience lower growth and higher unemployment as a result of the global economic crisis but is well-placed to avoid a recession.

However, Europe's largest economy Germany has already fallen into recession and the US, Japan and Britain are on the brink. Meanwhile, growth in China, Australia's largest trading partner, is likely to slow amid the global slump.

The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity in three to nine months into the future, fell sharply to 1.1 per cent in September from 3.5 per cent in August.

'This is a very disturbing fall', Westpac's chief economist Bill Evans said, adding that the August to September drop was sharper than any monthly fall seen during the last recession in Australia.

'The growth rate is signalling a very weak growth outlook through at least the first half of 2009'.

'It is consistent with Westpac's view that growth in the first half of 2009 will be barely positive with a decent risk that the first two quarters of growth in 2009 could be negative'.

Australia, which last pitched into a recession in 1990-1991, would be deemed to be in a recession after two consecutive quarters of negative growth.

The fall in the leading index in September was the largest monthly drop since the mid-1980s and Mr Evans said it raised the prospect of a further interest rate cut in December.

The central Reserve Bank of Australia has slashed its official cash interest rate by 200 basis points since the beginning of September and the rate now stands at 5.25 per cent.

Mr Evans said a further 75 basis points were likely to be cut at the Bank board's next monthly meeting on December 2 and that rates would eventually fall to 3.5 per cent or lower. -- AFP