News Service from House Harris

Aust economy forecast to contract in 2009, report says

SYDNEY, March 23 AAP - The Australian economy is forecast to contract through 2009 as slumping world trade and weakening Chinese economic activity hits local businesses, a report says.

Dun and Bradstreet's (D&B) global economic and risk outlook report says Australian gross domestic product (GDP) will decline by 0.2 per cent in 2009, and compares with its previous forecast of a 0.5 per cent rise.

"A collapse in world trade, particularly in the Asia-Pacific region, and a sharp drop in economic growth for China have significantly heightened the downside risk to Australia's outlook," the report, released on Monday, said.

D&B chief executive Christine Christian said local businesses would struggle amid falling demand for Australian exports among key trading partners in Asia.

"Clearly the worst is yet to come, and Australian executives have recognised this in the expectations for declining sales and revenue in the June quarter," Ms Christian said in a statement.

"While there are a number of concerns for Australia, the most significant will be the decline in forecast economic growth for China, which has fuelled much of Australia's growth over the last decade."

The report said China's GDP was expected to slow to 3.5 per cent in 2009, with the four trillion Chinese yuan government stimulus package the "only real guarantee against an outright recession in 2009".

"D&B continues to believe that if the economy manages to grow in 2009, this will have been a remarkable achievement," the report said.

China's GDP expanded by nine per cent in 2008, down from 13 per cent in 2007.

Ms Christian said the deteriorating global outlook required a "unique balancing act" from the Australian government.

"They need to continue to stimulate the Australian economy but do so in a way that avoids contributing to protectionist trends, both manufacturing and financial around the world," Ms Christian said.

The latest official forecasts from the Australian Treasury, released at the time of the federal government's $42 billion fiscal stimulus package in early February, were for GDP growth of one per cent in 2008/09 and two per cent in 2009/10.

The Australian economy contracted b 0.5 per cent in the December quarter of 2008, with the annual growth rate slowing to 0.3 per cent.

The report forecast world economic growth to fall by 1.2 per cent in 2009.

In its third downward revision since October last year, the International Monetary Fund (IMF) said last week it expected global economic growth in 2009 to fall between minus 0.5 and minus 1.0 per cent.