Get ready for recession: Access Economics

19 Jan 2009, 1:39 pm   -   Source: AAP/SBS
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A leading economic forecaster has warned its clients to batten down the hatches for the sharpest deceleration Australia's economy has ever experienced.

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A leading economic forecaster has warned its clients to batten down the hatches for the sharpest deceleration Australia's economy has ever experienced.

But Australia is in a better position than almost any other rich nation heading into recession, Access Economics says.

And not everyone - especially those who have no reason to fear losing their job - will be impacted adversely by the dramatic slowdown this year.

"Really big and bad news is headed our way," Access said in its Business Outlook for December 2008, released on Monday.

"Conditions are worsening very rapidly. This is not just a recession; it will be the sharpest deceleration Australia's economy has ever seen."

Hole in the budget expected

The report also warned the Rudd government will not have sufficient money to finance its reform agenda for education, infrastructure, climate change and water management.

It says the budget will take a king hit from falling company tax payments, and for the nation's current account deficit which Access tips to rise from $65 billion this financial year to $100 billion in 2009-10.

Swan won't speculate on "r" word

The report demonstrates the difficult global conditions that Australia confronts, topped off with a shrinking economy in the US and slowing in economic growth in China, Federal Treasurer Wayne Swan told ABC Radio on Monday.

But when asked whether Australia would go into a deficit, he replied: "I certainly don't speculate about that.

"I mean every day will bring a new set of private sector forecasts and I don't intend to ... respond to them on a daily basis.

"But I guess what this report does do is point to the impact of a global recession, and what it will mean for world growth."

The government would respond "if necessary in a timely way", with a further stimulus package if it was needed, Mr Swan said.

Budget deficit must be last resort: Turnbull

But Mr Turnbull says putting the Budget into deficit to shore up the economy should only be used by the Government as a "last resort" and any deficit must be as low as possible.

Mr Turnbull has told the ABC while there are times when a deficit cannot be avoided, the Government must justify further spending.

"A deficit must be a last resort, not an easy way out," he said.

"Mr Rudd wants to get a leave pass to run a huge deficit so there can be no constraints on spending.

"We will hold him to account - not just for the level of deficit, not just for the amount of spending - but for its quality and effectiveness."

Mr Turnbull has reiterated his call for the Government to bring forward tax cuts scheduled for July this year.

"It's up to the Government to ensure its policies spend Australian taxpayers' dollars wisely and what we haven't seen of course is any tough decisions taken yet, and any new [economic] stimuluses should be in the form of tax cuts that create jobs," he said.

China's slowdown 'could mean Australia's recession'

Australia was fine while China's economy was strong, but was "buggered" as the emerging economy became badly wounded, the report found.

Access was confident about China's economic prospects over the long term, but not in 2009.

But a possible Chinese rebound earlier, coupled with stimulus spending by the federal government and Reserve Bank action to reduce interest rates, could mean an earlier and more robust recovery than Access predicted.
   
"Such a boom-bust-boom scenario is not the most likely outcome, but it is a plausible one," it said.

In the meantime, national wealth - especially from exports - and employment would suffer in the looming recession, the report says.

Access is predicting a cautious recovery after late 2009, dependent on housing prices - forecast to soften by between five per cent to 8 per cent - and unemployment.

Business borrowing slump, ABS figures show

Meanwhile, new figures show business borrowing dropped more than 10 per cent in November as the global economic woes took their toll on Australia.

But the Bureau of Statistics says lending by homeowners held steady helped by government incentives.

Housing finance for owner-occupiers was up 1.4 per cent in November after the federal government doubled the first home owners grant to 14 thousand dollars for established homes and tripled it for newly-constructed houses.

But commercial borrowing plummeted 10.4 per cent and Australians' appetite for personal credit fell 1.8 per cent.

Access Economics is also predicting:

- Global growth in 2009 will be worse than at any time since the early 1990s, and may well be the worst in several decades;

- Australia's recent prosperity will unwind "scarily" fast on the back of a slowdown in China;

- A big fall in the rate of Australia's inflation, as petrol prices tumble and retailers and wholesalers cut margins;

- Official interest rates will be cut to 2.5 per cent;

- The $A to tumble to US56 cents in 2009;

- Unemployment to jump from its present rate of 4.5 per cent to more than 7 per cent by early 2010;

-The price of an average home to fall by up to eight per cent this year.

-Access Economics director Chris Richardson, who admits the outlook paints a very grim picture for the Australian economy, says China is largely to blame.

"China has gone from being a force for good for Australia's economic outlook to a force for evil," he told AAP.

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