IMF cuts Aussie growth outlook, shares slide again, European banks slash rates: Economy roundup

Just days after the Rudd Government released its mid-year economic forecast predicting 2% growth in 2008-09, the International Monetary Fund has released new data that might embarrass Prime Minister Kevin Rudd and Treasurer Wayne Swan.

Just days after the Rudd Government released its mid-year economic forecast predicting 2% growth in 2008-09, the International Monetary Fund has released new data that might embarrass Prime Minister Kevin Rudd and Treasurer Wayne Swan.

The IMF overnight sliced its forecast for Australia’s economic growth rate to 1.8% in 2008-09, well below the Government’s revised forecasts.

Rudd’s confident prediction that economic growth this year “would have a ‘two’ in front of it” now looks a little shaky.

Australian markets have opened 3.5% weaker after losses on Wall Street and Europe overnight, while fears of a global recession have promoted interest rate cuts across Europe.

The benchmark S&P/ASX200 index had dropped 4.04% or 167.5 points to 3982.2 at 12.15pm AEST.

NAB shares took a 7.9% hit this morning to $22.75, while BHP Billiton fell 7.7% to $26.96.

The dollar also dropped 0.32% this morning to hit US66c.

Meanwhile, Wall Street posted its worst two-day drop since 1987, with the Dow Jones Industrial Average dropping 443.48 points or 4.85% last night to close at 8695.79.

Fears of a global recession have been fuelled by interest rate cuts in Europe. The European Central Bank cut rates by half a percentage point to 3.25%, while the Bank of England cut its official cash rate by 1.5% to 3%.

The announcements didn’t help European markets, with the FTSEurofirst 300 index dropping 5.78% to 898.13.

Back home, construction activity in Australia has fallen for an eighth consecutive month, as global economic turmoil has sparked building project delays.

The Australian Industry Group/Housing Industry Association Performance of Construction index rose 4.6 points to 36.4 last month, but still remains below the 50 points level separating expansion from contraction.

“The findings confirm the intense and on-going pressures on the construction industry from tight credit conditions, weak demand and deteriorating economic sentiment,” AIG associate director, economics and research, Tony Pensabene says.