Australia At Risk of Recession in 2009, Says Westpac
Australia At Risk of Recession in 2009, Says Westpac
Australia’s Westpac Leading Index fell -1.0% in September, the lowest in at least 23 years. The reading suggests the annualized growth rate has fallen to a meager 1.1%, a far cry from the average trend level at 3.9% and a dramatic drop-off from last month’s 3.5%. This suggests the economy is on pace to sink into recession for the first time in 17 years. Indeed, Westpac’s chief economist Bill Evans said that there is a “decent risk that the first two quarters of growth in 2009 could be negative.”
Policymakers have moved aggressively to offer fiscal and monetary stimulus, with the Reserve Bank of Australia slashing borrowing costs by a hefty 2% since September and the government offering A$10.4 billion ($6.8 billion) in handouts. The fiscal approach may prove most effective: Australia has some of the lowest household savings rate among OECD countries, suggesting consumers will actually spend the money being given to them and help boost demand. Meanwhile, it typically takes several months for the effects of rate cuts to filter through the broad economy. Still, traders continue to price in at least 175 basis points in additional monetary easing over the next 12 months.
The Australian Dollar was indifferent to the release, with forex traders becoming arguably numb to continuously poor performance from the larger antipodean economy.
DailyFX
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