Australian recession warning after biggest quarterly slump in 20 years
Better than expected results for retail spending provided a glimmer of hope after an expert warned Australia could be in a recession in a matter of months.
Yesterday the ABS revealed our economy had shrunk by 1.2 per cent in the three months to March on the back of the summer floods and Cyclone Yasi, which hit Queensland’s coal exports and banana plantations hard and cost national exports $2 billion.
The results were the nation’s worst quarterly slide since Australia’s last recession in 1991 and comes on the back of falling building approvals, house prices and poor retail spending.
While the economy was largely sheltered from the worst of the global financial crisis, which led much of the rest of the world, including the US and the UK, into recession, the poor start to the year raised fears the nation may dip into recession - defined as two consecutive quarters of negative economic growth.
Recession fears were further fuelled by the early data for the present quarter which has been soft, reported the Herald Sun.
Commsec’s chief economist Craig James said he was not optimistic the economy would pick up in the quarter ending in June, given the struggling manufacturing sector and the flat figures for home loans.
“While the downturn can be largely explained by the disruption to coal exports caused by Cyclone Yasi, it only takes a small fall in output in the June quarter to produce a technical recession,” he said.
“In short, there is no room for complacency.”
But in a bright spot for the economy the ABS today said retail spending beat economists’ expectations to rise 1.1 per cent from last month in April.
Treasurer Wayne Swan said the economy would “rebound” as rebuilding efforts after the summer’s natural disasters helped it to grow.
“I think there is a rebound in the economy,” he told ABC Radio.
Treasury secretary Martin Parkinson admitted the latest national accounts were marginally larger then he had expected, but said the slump does not change the Government’s strong expectations for growth later this year.
“But there is nothing in the accounts to change our perspective of what will happen next,” he said.
“We will see subdued production in the March quarter, a little bit more of that as we have gone into the June quarter, but then a strong rebound with very positive growth in 2011/12 and 2012/13.”
The good news is that the Reserve Bank is now likely to hold on raising interest rates when it meets on Tuesday until the economic situation becomes clearer, although a winter hike is still on the cards.
TD Securities economist Roland Randall, JP Morgan economist Stephen Walters and Mr James are among experts expecting a 25 basis-point interest rate rise in August.
“A July hike is possible, but it makes sense to wait another month so officials can view another round of monthly data and, importantly, the second quarter inflation report at the end of July,” Mr Walters said.
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