AUSTRALIA’S ABILITY to escape the recession was called into question yesterday after the country reported an unexpected contraction in the fourth quarter, its first in eight years.
The government said the economy shrank by 0.5 per cent from the third quarter, surprising economists who were predicting flat or slight growth. Year-on-year, the economy grew by 0.3 per cent, the slowest pace since 1991 when the country was last in recession.
A 10.4 per cent rise in the farming sector for the fourth quarter offset a dramatic 0.8 per cent shrinkage in the non-farm sector. “If it weren’t for a slight improvement in farm production because of the vagaries of the weather, we would officially be declaring ourselves in recession,” said Shane Oliver, chief economist with AMP, noting that non-farm growth had fallen for two consecutive quarters.
Wayne Swan, treasurer, said the economy had fared better than those of G7 members.
He pointed to the “sharpest synchronised global downturn in our lifetime”, and called the national accounts a “sobering but unsurprising outcome”.
Stephen Walters, JPMorgan chief economist, predicted the economy would contract further over the next two quarters. “At that point we’re looking at an economy that is stagnant or has been going backwards for at least a year.”
The figures dispelled government optimism. “The government didn’t predict recession,” Mr Walters said. “They predicted the economy would weaken. This has been a big surprise to them.”
Economists say the weak third quarter was a direct result of the central bank's policy of increasing interest rates from late 2007 to March 2008, well past the point when other economies were cutting rates to try to stave off recession.– ( Financial Timesservice)
