Australia is on the brink of recession – but it seems the economy will have a narrow escape, according to
Australia is on the brink of recession – but it seems the economy will have a narrow escape, according to a new economic briefing from IBISWorld.
A recession is defined as two consecutive quarters of negative growth in GDP; IBISWorld anticipates negative growth in the third quarter of 2008-09, followed by an increase in GDP in the last quarter of the year.
GDP will contract again in the first quarter of 2009-10, but technically, the economy will not enter recession. It will fare much better than the US and other global economic powerhouses, the firm predicts.
IBISWorld suggests trouble started at the end of 2007, when high interest rates began to slow the economy, before the credit crunch hit. Tighter credit markets, slow global growth, and lower sentiment have affected investment and household consumption, it adds.
“Prior to the latest Government stimulus package, recession was a certainty, with stagnant household consumption and declining investment expected to send GDP growth into negative territory for at least three consecutive quarters over 2009,” IBISWorld says.
“The Federal Government’s latest $42 billion stimulus package is expected to generate growth in the June and December quarters of 2009.
“The Federal Government’s plan includes over $12.5 billion of direct hand-outs to various groups, the most prominent being families and low to medium income earners. Payments are mostly scheduled in March and April of 2009 and will boost household consumption in the June quarter, thereby resulting in positive GDP growth for the last quarter of 2008-09.
“A large part of the stimulus package will be Government capital expenditure, which aims to fill the hole left by falling private capital expenditure. This will only have a substantial effect on the economy from the September quarter of 2009 onwards.
“Although public capital expenditure is not expected to keep Australia from having a negative quarter over the three months to September 2009, it is expected to keep Australia out of recession in the December quarter.”
Over the 2008-09 year, IBISWorld forecasts the economy will grow by 1 percent before slowing to growth of just 0.6 percent in 2009-10. These would be the slowest growth rates since 1991-92 when the economy was beginning to recover from the 1990-91 recession. Both imports and exports will slow as domestic and international demand weaken.
“The economy is expected to show signs of recovery in late 2009, with a stronger recovery beginning in the June quarter of 2010. Government investment and the housing market are expected to lead the economic recovery with other segments of capital expenditure and household consumption following,” the firm states.
To read the full report, click here.