Aussie economy shrinks

The Australian economy contracted in the final three months of last year,suggesting the nation will enter a recession this year, triggering more job losses.

Gross domestic product growth for the fourth quarter dipped 0.5 per cent, the Australian Bureau of Statistics said, following a 0.1 per cent rise in the third quarter. Analysts surveyed by Bloomberg expected the economy to grow by 0.2 per cent in the fourth quarter.

The Australian dollar sank on the news, which surprised analysts.

"This is inevitably the first quarter of Australia's recession, that it's currently in," said Matt Robinson of Moody's Economy.com.

"It makes a mockery of the comment from RBA yesterday that Australia hasn't seen the sizeable contraction in demand that other economies have seen."

Excluding the farm sector, the economy shrank by 0.8 per cent alone. The main drags on the economy were a slump in manufacturing, which lopped 0.5 percentage points off the quarterly growth rate, while property and services subtracted 0.3 percentage points.

For the year, the economy expanded 0.3 per cent, less than expectations of a 1.2 per cent increase according to a Bloomberg survey.

The poor national accounts figures come one day after the Reserve Bank justified a decision to leave interest rates unchanged in part because the economy had not "experienced the sort of large contraction seen elsewhere."

The RBA decided to hold rates steady at a 1964 low, citing the strength of the Australian financial system and the flow-through effects of the 4 percentage points in cuts already made since September.

The Australian dollar fell on the announcement, dropping almost one US cent to 62.93 US cents in recent trade, down from 63.86 US cents.  Stocks were also weakened, with the main indexes retreating to be about 2.2 per cent lower for the day.

Worst since 2000

The December quarter was the weakest since the final three months of 2000, when the introduction of the GST distorted the economy and produced a 0.9 per cent contraction.

Australia's unemployment rate is now running at about 4.8 per cent, a tally that's set to rise in coming months as companies shed workers to remain in business.

In the past week, firms have announced thousands of job cuts, including at Pacific Brands, Robert Bosch, and Lend Lease.

Australia is yet to enter a "technical recession" - considered to be two straight quarters of shrinkage - because the third quarter of last year remained in positive territory. The meagre 0.1 per cent growth for the period was left unrevised by the ABS.  The bureau did chip away at the September quarter's annualised growth figure, lowering it to 1.8 per cent from 1.9 per cent.

- © Fairfax NZ News