Global recession getting worse: Swan

New data pointing to a recession in Australia this year is "significant proof" of
the impact of a severe global economic slowdown, Treasurer Wayne Swan says.
Still, the data suggests the economy is unlikely to suffer a recession as deep as
that experienced in the early 1990s due to aggressive interest rates cuts and
stimulus measures already undertaken.
The Westpac-Melbourne Institute Leading Index of economic activity released on
Wednesday showed annualised growth contracted 3.1 per cent in January, sharply below
its long-term 3.2 per cent positive trend.
The index is a pointer to economic activity in three to nine months time and is
calculated using domestic company profits, productivity growth, share prices,
dwelling approvals, overtime worked, as well as US industrial production.
"The index is now in deeply negative territory consistent with contracting economic
activity," Westpac senior economist Matthew Hassan said.
There were only four occasions in the 49-year history of the index in which its
growth rate had fallen below the latest reading: in the early 1960s, the mid-1970s,
the early 1980s and the early 1990s.
"Each of these was followed by recessions in the Australian economy," Mr Hassan said.
Mr Swan said the report was proof of the significant impact on the Australian
economy from the global recession.
"The impact of the global recession gets worse by the week," he told reporters in
Canberra.
Asked earlier whether there was a bottom in sight to the global downturn, Mr Swan
said: "It doesn't appear so."
"It is very hard to predict what will happen in the future."
While the leading index continued to point to sharply weaker activity down the
track, the coincident index contained in the Westpac report suggested a more
moderate deterioration in economic growth.
The annualised growth rate of the coincident index, which measures current activity,
was 1.8 per cent, below its long-term trend of 3.5 per cent, but comfortably above
zero.
This index takes into account household income, retail spending and unemployment.
"Aggressive rate cuts and $8.7 billion in fiscal payments have given a major boost
to incomes over the last six months," Mr Hassan said.
Without support for household incomes and retail spending, growth in this measure
would also have slipped into negative territory for the first time since 1991.
"The policy response to date suggests the economy is not heading for a repeat of the
early 1990s experience," he said.
Mr Hassan said Australia was not having to deal with problems that badly undermined
the banking system in the early 1990s, such as the sharply unwinding boom in
commercial property.
The government argues the federal opposition's plan to vote against its business
investment partnership in the Senate threatens the commercial property market,
putting thousands of jobs at risk.
The plan to fill a vacuum caused by foreign banks exiting commercial property
financing involves the nation's four major banks together matching a $2 billion
commitment from the government.
The government is also pledging a $26 billion guarantee for the plan.
The opposition has rejected the bill which it has dubbed "Ruddbank", saying it is
asking for an open cheque without any accountability.
Mr Swan said legislation setting up the partnership had "very many" safeguards.
"Perfectly viable property projects with good income streams are now threatened for
no other reason other than foreign bank withdrawal," he said.
The flow-on impact would affect a sector that employed about 150,000 people.
"But the opposition ... would rather play politics with the lives of tens of
thousands of Australians than support a very responsible measure."
Opposition finance spokeswoman Helen Coonan says there is little evidence foreign
banks are leaving the sector.
"A more perverse consequence is that it will actually encourage foreign banks to
exit, rather than encourage them to stay," she said.
"They know that if they exit Australia, there's a big, fat, bloated Ruddbank, a
taxpayer-funded safety net that will take them out at full value."