News Service from House Harris

Australia headed for worse economic times, report

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SYDNEY, Aug 12 AAP - BIS Shrapnel says that despite the recent run of financial good news, the economy will experience falling household incomes, employment and a 17 per cent decline in business investment over the next 12 months.

Beyond 2010, the economic forecaster expects a solid recovery with economic growth rising to four per cent by 2011-12.

Although BIS Shrapnel says it does not expect a recession this financial year, economic growth will be only 0.1 per cent in calendar 2009 and 0.5 per cent over the current financial year.

BIS Shrapnel senior economist Richard Robinson said he would not rule out another quarter of negative economic growth this financial year.

This contrasts with the Reserve Bank of Australia's forecast on Friday where it said gross domestic product would rise by 0.5 per cent over the 2009 calender year before lifting to one per cent in the year to June 2010.

Mr Robinson said a turnaround in the stock cycle, housing construction, government spending and positive net exports should prevent a contraction.

"The credit squeeze has expedited and exacerbated a downturn in business investment," Mr Robinson said.

"While overseas economic and financial conditions are expected to steadily improve through 2009/10, the ongoing downturn in business investment, and the fact that there will be considerable underemployment of the existing resources, will preclude a recovery in employment before 2010/11," he said.

Unemployment is expected to peak at 8 per cent next year, BIS Shrapnel said.

Mr Robinson said business investment would only begin to regain its momentum from 2011/12 after experiencing a deep downturn.