Can Australia Avoid Severe Recession?

Although Australia is at its 17th year of continuous growth, some signs of a slowdown are becoming more visible. Can one of the strongest economies in the world avoid a major slowdown and a possible recession?

In the wake of a serious global financial crisis, several economic indicators are already showing clear signs of slowdown in economic activity. Employment growth has slowed sharply, housing activity is weakening and consumer spending has been stagnating. Moreover, business capital expenditure and infrastructure spending, which have been some of the main drivers of Australia's growth, are likely to decrease through lower earnings, lack of confidence and credit availability. Also, exports may no longer support the expansion since lower commodity prices and slowing global demand are no longer offset by a the weakening currency.

Under current market conditions, it seems that the only hope for the declining economy may be the stimulus package and further interest rate cuts. In fact, the A$10.4bn package, announced this week by the Australian government is expected to boost the weakening consumption and housing market. Though the effects of pension and family payments and subsidies to first home buyers are likely to be visible not earlier than next year, the consumer confidence may revive this year. Also, the interest rate reductions with more to come are likely to broader financial conditions, stimulate the household demand and the cyclical recovery next year.

Anna Fedec
10/15/2008 11:02:53 AM