Recession to ease by year-end: experts

There are tentative signs the economy will start pulling out of recession towards
the end of the year.

But in the meantime, unemployment is expected to rise rapidly against a backdrop of
weakening hiring intentions, while a major plank of economic growth in recent years
is now in deterioration.

New data shows an eight-year upswing in construction work came to an abrupt halt in
the first three months of the year, making a second quarter of negative economic
growth likely when the latest national accounts are released next Wednesday.
A recession is officially defined as two consecutive quarters of negative growth,
although Reserve Bank of Australia governor Glenn Stevens declared the nation was
already in recession in April, without seeing the official figures.
"Today's numbers confirmed that the construction sector has turned from being the
mainstay of growth to a large drag on activity," RBS Australia economist Felicity
Emmett said.
Construction work done in the March quarter fell a sharp 3.7 per cent, subtracting
0.6 percentage points from gross domestic product growth, having added 0.3
percentage points in the December quarter and 1.7 percentage points over the course
of 2008, she said.
However, Commonwealth Securities chief economist Craig James said the drop in
construction activity could prove temporary.
"Governments are in the process of ramping up infrastructure spending while private
sector firms are more active as a result of spending by the federal government,
especially for schools and social housing," he said.
Still, data due on Thursday is likely to show an even larger drop in business
capital expenditure in the March quarter, possibly as much as 10 per cent compared
with the previous quarter.
Other government data released on Wednesday showed that skilled vacancies fell a
further 7.0 per cent in May to stand a hefty 63 per cent lower than a year earlier.
"This skilled vacancy measure, the ANZ job ads and the NAB employment indexes all
point to sizeable attrition in employment levels over the next couple of quarters,"
NAB Capital senior economist David de Garis said.
He said it equated to average employment declines of 30,000 to 35,000 per month over
the next six months.
"That would put the unemployment rate in the vicinity of seven per cent by the
December quarter of this year, if not above it," he said.
"There's no denying that the labour market for this year continues to be very soggy."
The jobless rate was 5.4 per cent in April.
This month's federal budget forecast the lagging indicator of unemployment climbing
to 8.25 per cent by mid-2010 and to 8.5 per cent 12 months later.
A key pointer for future economic growth, also released on Wednesday, suggested that
the economy may have seen the worst of the recession by the end of the year.
The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of
economic activity three to nine months into the future, recorded an annualised
negative rate of 5.1 per cent in March - well below its long-term growth trend of
2.8 per cent.
However, this compared with a negative rate of 6.0 per cent in February - the
weakest reading since August 1982.
"This is the first substantive rise since April last year," Westpac senior economist
Matthew Hassan said.
"The slight improvement in the index is consistent with indicators suggesting the
pace of contraction in the global economy has also eased in recent months."
However, he said the index remained in deep recession territory, implying a likely
further contraction in activity through the middle of 2009.