Australia heading for recession: IMF

Australia is heading for a recession this year, with the International Monetary Fund
(IMF) now predicting the economy will contract.
The IMF has downgraded its forecast for Australia and expects the economy to shrink
by 0.2 per cent in 2009.
Until now the experts thought Australia would buck the global recession and stay in
the black.
The bad news raises the stakes for the federal government's looming economic rescue
package, which could come as early as next week.
There is speculation the government will throw much more money at the economy to
resuscitate it.
And there is talk the Reserve Bank of Australia (RBA) could slash the official cash
rate by as much as 1.25 percentage points on Tuesday.
Prime Minister Kevin Rudd said the world had fallen victim to "absolute economic
carnage".
He said the IMF's forecast for Australia was "bad", but it was still better than for
other major developed economies.
Mr Rudd is sticking with Treasury's most recent forecast for economic growth of two
per cent this year.
He hinted heavily at fresh measures to boost the flagging economy.
"This government remains resolved to take whatever further action is necessary to
deal with these falls in revenues, growth and employment for Australia caused by
this global economic recession," he told reporters in Canberra.
Mr Rudd hosed down talk that he would cut taxes.
"Tax cuts of themselves represent a much longer burning fuse, that is they do not
have immediate effect."
The package would be "temporary, sharp and focused".
CommSec chief economist Craig James said if the IMF's forecast was right then that
meant a recession.
"We would see a recession if the economy would contract," he told AAP after learning
of the IMF's forecast.
The "gloomy" forecast would focus extra attention on the stimulus package and it
would probably be much bigger, Mr James said.
"I think it does throw down the gauntlet, I think it does put pressure on the
government."
He hoped the government's package would include tax cuts, cash or voucher handouts
to encourage spending, money for infrastructure, and an extension to the first
homeowners grant.
Mr James tipped the Reserve Bank could slash the official cash rate by 1.25 per cent
next week to boost the economy.
But he thought the IMF was being too pessimistic, and tipped Australia would stay
out of recession this year.
The last IMF forecast was for the Australian economy to grow at 1.8 per cent this
year. The updated forecast was revealed in a briefing to journalists in the US on
Saturday morning, Australian time.
It is understood the IMF emphasised that the margin of error meant they were, to all
intents and purposes, forecasting "close to zero" growth.
The IMF officials said it would be best to allow the economy's automatic stabilisers
to work, which means allowing tax revenue to fall and spending to rise in difficult
times.
This can lead to budget deficits.
A majority of economists surveyed by AAP expect the RBA to cut the official cash
rate by 100 basis points following its February 3 board meeting, which would take
the cash rate to a 45-year low of 3.25 per cent - its lowest since 1964 when
regulators set it at 3.18 per cent.