Aust economic growth at recessionary levels, WBC-MI
By Ed Logue18 Mar 2009 2:38 PM
SYDNEY, March 18 AAP - The Australian economy is likely to fall into recession although it will not be as severe the 1990s downturn because of early action by policy makers, a survey shows.
The Westpac/Melbourne Institute leading index, which signals the likely pace of economic activity three to nine months in the future, shrank by an annualised 3.1 per cent in January.
That compared to a downwardly revised fall of 2.8 per cent in December.
January's leading index was the weakest read in almost 18 years, when the economy was last entering recession, and was the fifth consecutive month that the index had been below the long-term trend growth of 3.2 per cent.
Westpac senior economist Matthew Hassan said on Wednesday there has been four times in the 49 years of the leading index that the growth rate had dropped below the level of January's result. That occurred in the early 1960s, mid-70s, early 80s and the early 90s.
"Each of these was followed by recessions in the Australian economy," Mr Hassan said.
Mr Hassan said January's leading index was the weakest read in the series since August 1990.
"Back then the economy had already entered what went on to become a deep and long-lasting recession," he said.
"The trend unemployment rate had risen 1.2 percentage points from its cyclical low and went on to climb a further 3.8 percentage points to a high of 10.7 per cent over the following two years."
Australia posted its first official contraction in gross domestic product recently, by 0.5 per cent, when the Australian Bureau of Statistics revealed the December quarter national accounts on March 4.
Mr Hassan said stimulus measures from the nation's central bank and the federal government should help cushion the Australian economy from a recession as intense as the 1990s.
Between September and December, the Reserve Bank of Australia (RBA) lowered the cash rate from 7.25 per cent to 4.25 per cent, and cut the rate by a further percentage point in February to 3.25 per cent - a 45-year low.
The federal government announced its first stimulus package of $10.4 billion in mid-October.
"Both monetary and fiscal policy has been eased aggressively and early," Mr Hassan said.
"At the same time, Australia is not having to deal with the same sort of problems that badly undermined the banking system in the early 1990s - the sharply unwinding boom in commercial property in particular."
Mr Hassan said he expected the RBA would ease monetary policy at its next board meeting on April 7.
"We expect it to reduce the cash rate by another 25 basis points to three per cent, with the overnight cash rate eventually moving to two per cent in the second half of 2009," he said.
The leading index was compiled from published economic data for January.
