Economy on the brink of recession
By GEORGE MEGALOGENIS
03mar01
AUSTRALIA has slipped to the edge
of recession, with a stunning retreat
in business and housing investment
pointing to the first contraction in the
economy since 1991.
The Treasury Department is believed to have warned the Howard Government that official figures, released yesterday, increase the risk that the economy went backwards in the final three months of 2000.
This would break a record run of growth and prosperity since the nation emerged from recession in the September quarter of 1991.
Business spending fell 5.2 per cent and residential construction dropped another 12.8 per cent in the December quarter, the Australian Bureau of Statistics said.
"If the Treasury is looking at the same numbers we are, the Treasury will be telling Peter Costello that he is likely to have bad news to explain when the national accounts are released on Wednesday," said Hongkong & Shanghai Bank chief economist John Edwards yesterday.
Half of the nation's 22 senior private economists are predicting the economy either shrunk slightly in the December quarter (nine), or stagnated (two). A week earlier, the gloomy numbered just two, while another three were punting on no growth, according to a Reuters poll.
Internal advice to the Government is understood to now put the odds of a minus number at 50/50.
However, one negative quarter would not mean full-blown recession. Gross domestic product has to fall for two consecutive quarters to earn the R-tag -- and no economist is yet prepared to say this will happen. Nevertheless, the Government cannot afford even one poor quarter after its triple tax backflip on petrol excise and trusts this week and the business activity statement for the GST last week.
John Howard has been running his re-election strategy on the argument that he is a better economic manager than Kim Beazley.
But confirmation on Wednesday on whether the economy is in reverse or, at best, stalled, would undermine the Prime Minister and encourage the Opposition Leader to blame the GST for the slowdown because of its impact on consumer spending.
The national accounts are notoriously difficult to predict, covering more than $150 billion in transactions throughout the economy. Experts will have a clearer picture on Monday when the ABS issues figures for the level of stocks held by business.
However, the recent run of poor data has swelled the ranks of analysts predicting tough times.
One of the first to raise the alarm, UBS Warburg chief economist Mark Rider, said yesterday the GST had distorted the economy in the short term by squeezing the housing sector.
"You are seeing two years' worth of a housing downturn compressed into two quarters," he said.
The real value of residential building work soared 28 per cent in the six months before the GST, but has collapsed 41.5 per cent in the six months since July 1, the ABS says.
Mr Rider said the Government was unlucky to have introduced the GST just as the US economy began to deteriorate.
Mr Howard this week cut fuel excise and abolished future increases linked to inflation in a bid to arrest his slide in the opinion polls and save the Brisbane seat of Ryan at the by-election on March 17.