US President Obama might believe economic recovery is on the horizon, but new figures suggest this downturn is far from over in Australia.
The Westpac-Melbourne Institute Leading Index, which predicts the likely pace of economic activity up to nine months in the future, has plunged 5.1% in February – well below the trend of 2.9%.
Westpac chief economist Bill Evans has called the result “truly remarkable”.
“For some months the index has been signalling that the Australian economy will enter a recession. The consistent run of negative reads for the growth rate is comparable with Australia’s previous recessions which began in 1961, 1974, 1982, and 1990.”
But Evans says the most “disturbing” results are found when the figures are compared to these past recessions.
“During that recession the annualised growth rate of the index remained negative for 20 consecutive months, reaching its low point of -3.4% after 12 months. In this cycle the growth rate first went negative in October last year and deteriorated to -5.1% in this February reading.”
But the news isn’t all bad. Evans says Westpac’s view is that “despite concerning signals from the leading index, this current recession will be less damaging than the one in the early 1990s. That view is clearly supported by the much more pre-emptive monetary and fiscal policy approach taken in this recession relative to the last one.”
Business lending plunges
More bad news for the economy has come in the form of business lending figures, which have shown a 14.7% fall in commercial finance approvals in February.
This brings the annual decline to 43% – higher than any decline recorded in the 1990s recession.
ANZ senior economist Katie Dean has told The Australian Financial Review that the data “confirms the worst lies ahead for investment, employment and probably GDP”.
Shares flat
Meanwhile, the Australian sharemarket has opened 0.17% lower today following negative leads from Wall Street, where investors were worried by poor retail sales figures.
But the benchmark S&P/ASX200 index has since gained ground, and is now up 1.4 points or 0.04% to 3754.3 at 12.10 AEST.
Westpac shares have lost 0.6% to $20.55, while ANZ has lost 1.2% to $17.12. Commonwealth Bank shares shed 0.7% to $36.31 as AMP declined 1.1% to $5.33.
In the US, the Dow Jones Industrial Average fell 137.63 points or 1.71% to 7920.18, despite news that Goldman Sachs has sold $US5 billion of stock to help repay bailout funds given to the troubled financial services group to help survive the financial crisis.
“We never believed the investment of taxpayer funds was intended to be permanent,” chief financial officer David Viniar told Reuters.
“We view it as our duty to return the funds, as long as we can do it without negatively impacting our financial profile or ability to act as a central liquidity provider to the global capital markets.”
Back home, RBA head of financial stability Luci Ellis has said that the global economy will only recover when the world banking system is fixed.
“Restoring the global banking system to health is a precondition for a recovery in credit supply and economic activity,” Ellis said at a conference in Melbourne today. “As such, it has to take priority over longer-term reforms.
“At this stage it is hard to say if there is one right way to deal with these issues. The important thing is that they are dealt with.”
Deputy Prime Minister Julia Gillard has said that the decision by Qantas to sack 1750 workers has shown the recession is “hitting Australia”.
“This is more evidence that the global recession is bearing down on Australia and our economy,” she told the Nine Network.
“We can’t stop this at the shores of Australia, we can’t make people fly internationally when the countries from which they come, like the US and UK, are in recession and they’re cutting back,” she said.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
