Australia may be nearing recession, index shows, AS

Wed, Nov 19 09:33 AM

SYDNEY, Australia (AP) _ The outlook for Australia's economy is its weakest in 20 years, raising the risk of a recession in 2009, according to an index of economic trends. The annualized growth rate of the leading index, compiled by Westpac Banking Corp.

and the Melbourne Institute, fell to 1.1 percent in September from 3.5 percent in August. The monthly index measures the likely pace of growth three to nine months into the future.

"This is a very disturbing fall in the growth rate of the leading index," Westpac chief economist Bill Evans said in a statement Wednesday. He said it was the biggest monthly drop since the mid-1980s, and marked two straight months in which the index was below the long-term trend of 3.9 percent.

Evans said the report's outlook for early 2009 was poor, with the possibility of a recession. "The growth rate is signaling a very weak growth outlook through at least the first half of 2009," he said.

"It is consistent with Westpac's view that growth in the first half of 2009 will be barely positive with a decent risk that the first two quarters of growth in 2009 could be negative." A recession is defined as two straight quarters of contraction.

Evans predicted that Japan, the United States and most of Europe would be in recession through much of 2009. For Australia, Evans said he was confident that China's economic stimulus package would gain traction, commodity markets would recover and confidence would be partly restored.

"Australia's reliance on Asian growth, which has been a huge liability in recent months, should once again become an asset as we move into 2010," Evans said. Earlier this week, the National Association for Business Economics in the United States also projected recessions in some of the world's major economies.

It said the U.S. economy, which shrank at an annual rate of 0.3 percent in the July-September period, would contract at a rate of 2.6 percent in the current October-December quarter. The association also forecast that Japan, Canada, Mexico, Britian and much of Europe would all suffer recessions in the coming months.