Slight recession tipped for Australia

Australia will tip into a shallow recession in early 2009 as a slowing global economy reduces demand for mineral exports, a leading investment bank says.

JP Morgan Australia chief economist Stephen Walters said downward revisions for global growth for the current quarter and the first quarter of 2009 had led to a more pessimistic outlook for the country.

Mr Walters forecasts Australian GDP growth of 0.7 percent in 2009, down from 1.4 percent, already downgraded last week from 1.8 percent.

Australia's GDP growth for the rest of 2008 would fall to 2.1 percent from the previous forecast of 2.5 percent, he said.

"These new forecasts include expected falls in Australia's GDP in Q4 2008 and Q1 2009.

"If realised, the coming quarters will define the first technical recession in Australia since 1990/91," Mr Walters said.

"Previously, we assumed only one quarter of falling GDP, in Q4 2008."

As global growth weakens, Australia's export volumes and commodity prices would suffer and drag the country's terms of trade and national income lower, Mr Walters said.

"We now expect a small fall in export volumes in 2009 but significantly weaker commodity prices, including for iron ore and coal, Australia's two largest export commodities.

"We expect this downturn to resemble the shallow recession of 1977, with the extent of the decline in GDP this time cushioned by the plunge in the Australian dollar to a five-year low, the government's fiscal flexibility and the RBA's assertive policy easing."

With a slowing economy, Mr Walters said consumers would cut their spending and expected jobs growth to falter over the next two years.

"We forecast that the jobless rate will reach nine percent by the end of 2010 when, on our forecasts, more than one million Australians will be out of work," he said.

- AAP