Fed: Economy dodges recession bullet for now
By Colin Brinsden, Economics Correspondent03 Jun 2009 6:23 PM
CANBERRA, June 3 AAP - The economy has avoided a much feared recession on paper, but Prime Minister Kevin Rudd has warned the nation could still experience further periods of negative economic growth in the future.
Exports and household spending helped the economy grow by 0.4 per cent in the first three months of the year, preventing a second consecutive quarter of negative growth that defines a recession.
Mr Rudd welcomed the figures released in Wednesday's March quarter national accounts, given the global economy is suffering its worst recession in 75 years.
"Among the major advanced economies, Australia has the fastest economic growth, the lowest debt, the lowest deficit and is the only one of the major advanced economies to now not be in recession," Mr Rudd told parliament.
But he said there was no doubt there would be more "ups and downs" in the economy as the global recession worked its way through.
"Growth will continue to be slow for some time, unemployment will continue to rise and we can't rule out the possibility of further negative economic growth for Australia in the future," he said.
Gross domestic product (GDP) also rose by 0.4 per cent in the year to March.
The December quarter GDP was downgraded to show a 0.6 per cent contraction from an original 0.5 per cent fall.
Treasurer Wayne Swan said 20 of the 22 OECD countries that have reported their March quarter outcomes so far had seen negative growth.
"Without the (stimulus) payments, Treasury estimates the Australian economy would have contracted in the March quarter by around 0.2 per cent," Mr Swan told reporters in Canberra.
Household consumption rose 0.6 per cent in the March quarter, contributing 0.3 percentage points to quarterly GDP growth.
Opposition Leader Malcolm Turnbull said he was disappointed to see the government claiming credit for the positive figures.
"We have to recognise that the domestic economy remains weak."
Exports did contribute a strong 2.2 percentage points to growth in the quarter, but imports fell 7.0 per cent due to a weak business sector.
New private machinery and equipment investment and non-dwelling construction also fell dramatically.
RBC Capital Markets senior economist Su-Lin Ong said the national accounts showed that fiscal stimulus and 425 basis points of rate cuts by the Reserve Bank of Australia had gained traction in the economy and clearly lent support to the consumers in the quarter.
"Policy makers will be pleased that their actions are clearly tempering the depth and duration of this downturn," Ms Ong said.
"While Australia has technically dodged the recession bullet for now, we caution that it is only just beginning to feel the full wrath of the synchronised global recession."
Australian Industry Group (Ai Group) chief executive Heather Ridout said the positive GDP outcome would provide an important confidence boost to otherwise "very fragile" business conditions.
"This is particularly true in the manufacturing sector which has experienced a fall both in domestic and export activity," Ms Ridout said.
Ai Group's surveys of business conditions since the end of March show a continuation of a very weak operating environment over the past two months.
"This, together with the underlying weaknesses in the national accounts, point to the likelihood of further falls in employment and continued pressure on demand in the months ahead," Ms Ridout said.
The government is predicting the jobless rate will hit six per cent by the end of the 2008/09 financial year, before growing to 8.25 per cent by the middle of next year.
The unemployment rate was 5.4 per cent in April.
