Recovery to be led by housing: Westpac

Westpac Banking Corporation is forecasting the economy will return to slow growth
next year driven by housing construction.
Australia's biggest bank by market value expects the economy to contract one per
cent this year, before growing by one per cent in 2010.
"We've seen the economy decline more rapidly than was expected," Westpac chief
executive Gail Kelly told journalists after the bank announced its first-half profit
on Wednesday.
"The debate in early November was whether Australia would be able to avoid a
recession, and the debate today is how bad will it be, and how long will it last."
The Australian Bureau of Statistics showed the economy shrank 0.5 per cent in the
December quarter, following a tiny 0.1 per cent growth during the three months
before that.
Officials including Prime Minister Kevin Rudd and Reserve Bank of Australia governor
Glenn Stevens have publicly said the country is in, or heading for, a recession.
Westpac chief executive Gail Kelly said the business sector was being hit
particularly hard.
"We expect business credit growth to be negative by September and remain so for
2010," she said.
Westpac's profit for the six months to March was hit by $1.6 billion of impairments,
mostly from business loans.
However, the good thing for the economy and the prospects for a recovery was that
households were generally in a sound position, Mrs Kelly said.
"Growth has slowed for the housing sector too, although it is being supported by the
first home owners grant," she said.
"We believe this sector is holding up relatively well and will be the first sector
to lead the economy out of recession in 2010."
The bank increased its lending by nine per cent and deposits by 24 per cent over the
previous year, Mrs Kelly said.
That helped the retail and business banking arm increase cash earnings by 17 per
cent to $990 million.
Mrs Kelly said factors that were keeping the household sector relatively strong were
the significant reduction in interest rates, the absence of sub prime loans in
Australia, the ongoing excess demand for housing and the absence of a sudden and
large fall in house prices.
"Having said all that, when the recovery comes, it is likely to be a slow haul," Mrs
Kelly said.
"It will take a while for growth to be firmly established, and when it is, consumers
and businesses are likely to operate with more conservative settings."