Australia's economy contracted sharply in the fourth quarter of 2008, putting it on course to join major economies in recession in early 2009 and renewing expectations of further interest rates cuts in coming months.
Australia's average measure of gross domestic product fell 0.5% in the fourth quarter of 2008 from the third quarter and rose 0.3% from the year-earlier period, the Bureau of Statistics said. The quarterly contraction was the first since the fourth quarter of 2000.
The data also showed that the non-farm economy is already recession, contracting by 0.8% in the fourth quarter after a 0.2% contraction in the third quarter. The data was weaker than expected. Economists on average had forecast that GDP rose 0.1% on a quarterly basis and rose 1.1% from a year earlier. The bureau kept third quarter GDP growth at 0.1%.
In one fell swoop, the data erased emerging optimism among policy makers that Australia would avoid the worst of the economic downturn in 2009, and shine among the world's developed economies.
With the full force of a 20% terms of trade collapse yet to register completely in the economy, early 2009 is shaping up as the most testing time for the country in more than half a century, according to economists. A rundown in inventories and a detraction from investment more than offset a strong contribution from net exports in the quarter.
The bureau said gross national expenditure fell 1.5% in the fourth quarter from the third and rose 0.6% from the year-earlier quarter.
Treasurer's Comments
Australian Treasurer Wayne Swan said that weakening growth in Australia will likely erode government revenues and dent the budget bottom line.
Commenting after official data showed Australia's economy contracted by 0.5% in the fourth quarter of 2008, Swan said the data have "implications for the budget and for revenues and for growth". He noted that government tax revenues between a December economic and fiscal update and revised Treasury forecasts unveiled early last month were already written down by $115bn. "There'll be further flow-throughs (from the GDP data), I should imagine. I'm not going to speculate about the quantum’s. That is a measure of the magnitude of the events we are dealing with," Swan told reporters.
Any further write-down in tax revenues will likely put more pressure on the Reserve Bank of Australia to take the lead in stimulating the economy, as the government's ability to prime growth through big spending packages is curtailed as official debt levels swell.
Swan said there are no "quick fixes" to a recession plaguing many of Australia's major trading partners. But he was optimistic that recent measures, notably a boost to government grants for first home buyers, would support activity in 2009. However, he also admitted some households are using the government stimulus, coupled with a string of rate cuts by the RBA, to pay down debt rather than spend the additional cash. "Some people are choosing to save (the payments) rather than spend them. The positive side of the increased saving rate is that some people are repairing their balance sheet and it is giving them a greater degree of confidence about their future," Swan said.
News home