... So that You may be kept informed

Aust economic growth still at recessionary levels, survey

18 Feb 2009 11:13 AM

SYDNEY, Feb 18 AAP - Australia's economic growth continued in December to point to a likely recesssion, a survey says.

The Westpac/Melbourne Institute leading index of economic activity contracted by 1.2 per cent in December, compared to a upwardly revised 0.5 per cent contraction in October.

The survey indicates the likely pace of economic growth three to nine months into the future.

December marks the fourth consecutive month the index has been below the long-trend of 3.5 per cent.

Westpac senior economist Matthew Hassan said the index was a pointer to whether Australia could fall into a recession in 2009.

"Despite some modest upward revisions, the growth rate in the leading index remained in negative territory for the second consecutive month," Mr Hassan said in a statement.

"In the past, this has been a useful indication of a likely recession in Australia."

Mr Hassan said Australia's economic growth rate has turned about severely in the last six months of 2008, with seven of the eight index components contributing to the fall in December.

"The growth rate in the leading index has fallen sharply from the 4.5 per cent registered in July to Decembers read of 1.2 per cent," he said.

"Amongst the domestic components, the main contributions have come from: dwelling approvals (0.9 percentage point); share price index (0.7 percentage point); overtime worked (0.3 percentage point); productivity (0.7 percentage point); and corporate profits ( 1 percentage point).

"Deteriorating conditions abroad have also been a major factor with the US industrial production component detracting 2.3 percentage points."

The report noted the annualised growth of the coincident index increased to 3.3 per cent in December, from 2.4 per cent the month before, but it was still the long-term trend of 3.7 per cent.

"The government's $8.7 billion in fiscal payments to households in December were a key factor in the retail jump, although indications suggest the bulk of the cash was either saved or used to pay down debt," Mr Hassan said.

Mr Hassan expected the Reserve Bank of Australia's (RBA) to cut rates again when its board next meets on March 3.

The central bank cut the cash rate by 100 basis points on February 3 to a 45-year low of 3.25 per cent.

Since September, the RBA has lowered the cash rate by 400 basis points in a bid to cushion the domestic economy from a possible recession.

"We expect it to further reduce rates with the overnight cash rate eventually moving to two per cent by mid-2009."