Australia avoids recession, for now

The economy has avoided a much feared recession on paper but Prime Minister Kevin
Rudd has warned the nation could still experience further periods of negative
economic growth in the future.
Exports and household spending helped the economy grow by 0.4 per cent in the first
three months of the year, preventing a second consecutive quarter of negative growth
that defines a recession.
Mr Rudd welcomed the figures released in Wednesday's March quarter national
accounts, given the global economy is suffering its worst recession in 75 years.
"Among the major advanced economies, Australia has the fastest economic growth, the
lowest debt, the lowest deficit and is the only one of the major advanced economies
to now not be in recession," Mr Rudd told parliament.
But he said there was no doubt there would be more "ups and downs" in the economy as
the global recession worked its way through.
"Growth will continue to be slow for some time, unemployment will continue to rise
and we can't rule out the possibility of further negative economic growth for
Australia in the future," he said.
Gross domestic product (GDP) also rose by 0.4 per cent in the year to March.
The December quarter GDP was downgraded to show a 0.6 per cent contraction from an
original 0.5 per cent fall.
Treasurer Wayne Swan said 20 of the 22 OECD countries that have reported their March
quarter outcomes so far had seen negative growth.
"Without the (stimulus) payments, Treasury estimates the Australian economy would
have contracted in the March quarter by around 0.2 per cent," Mr Swan told
reporters.
Household consumption rose 0.6 per cent in the March quarter, contributing 0.3
percentage points to quarterly GDP growth.
Opposition Leader Malcolm Turnbull said he was disappointed to see the government
claiming credit for the positive figures.
"We have to recognise that the domestic economy remains weak."
Exports did contribute a strong 2.2 percentage points to growth in the quarter, but
imports fell 7.0 per cent due to a weak business sector.
New private machinery and equipment investment and non-dwelling construction also
fell dramatically.
RBC Capital Markets senior economist Su-Lin Ong said the national accounts showed
that fiscal stimulus and 425 basis points of rate cuts by the Reserve Bank of
Australia had gained traction in the economy and clearly lent support to the
consumers in the quarter.
"Policy makers will be pleased that their actions are clearly tempering the depth
and duration of this downturn," Ms Ong said.
"While Australia has technically dodged the recession bullet for now, we caution
that it is only just beginning to feel the full wrath of the synchronised global
recession."
Australian Industry Group (Ai Group) chief executive Heather Ridout said the
positive GDP outcome would provide an important confidence boost to otherwise "very
fragile" business conditions.
"This is particularly true in the manufacturing sector which has experienced a fall
both in domestic and export activity," Ms Ridout said.
Ai Group's surveys of business conditions since the end of March show a continuation
of a very weak operating environment over the past two months.
"This, together with the underlying weaknesses in the national accounts, point to
the likelihood of further falls in employment and continued pressure on demand in
the months ahead," Ms Ridout said.
The government is predicting the jobless rate will hit six per cent by the end of
the 2008/09 financial year, before growing to 8.25 per cent by the middle of next
year.
The unemployment rate was 5.4 per cent in April.