Australia is in recession, well-placed to recover, Stevens says

Wednesday 22nd April 2009

Australia has probably fallen into recession though it is better placed than many nations to ride out the global economic downturn and benefit from the eventual recover, said central bank Governor Glenn Stevens.

In the face of a worldwide slump there was little room for Australia to escape the fate that has befallen most of the country’s trading partners, Stevens said in a speech entitled ‘The Road to Recovery,’ delivered to a meeting of business leaders in Adelaide today and posted on the RBA’s website.

“The reasonable person, looking at all the information available now, would come to the conclusion that the Australian economy, too, is in recession,” Stevens said. “There remain good grounds to think that we will continue to weather the storm better than most.”Australia’s economy shrank 0.5% in the fourth quarter of 2008 and economists say it contracted further in the first quarter this year.

The central bank assumed a first-quarter contraction and dissipating inflation on April 7, when it decided to cut its key cash rate a quarter point to a 49-year low of 3%, minutes of the meeting released today show.Stevens’ comments echo those made by Prime Minister Kevin Rudd this week that the worst global recession in 75 years “means it's inevitable that Australia will be dragged into recession.”

The contraction in Australia’s economy in the fourth quarter is mild against the 1.6% contraction in the US, which has been mired in a year-long slump, and Japan’s, which shrank 3.2%. Australia’s banks escaped relatively unscathed from the toxic, mortgage-linked securities that corroded their US counterparts, leading to the demise of Lehman Brothers and multi-billion dollar bailout of the remaining large US lenders.

That’s meant the federal accounts are in relatively good shape, “with modest debt levels and a medium-term path for the budget back towards balance,” Stevens said today.“Without the massive obligations arising from bank rescues that will inevitably narrow the options available to governments in other countries, the financial regulatory system is strong and tested,” he said.

The Rudd administration has unveiled spending worth more than A$52 billion, including funding for schools and roads, and increased welfare for Australia’s poorest citizens. That’s helped keep Australian’s from sinking into the depths of gloom reached by American citizens.

Businesswire.co.nz

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