Shares rise after Wall Street rally, Australian economic growth to slow to 2%: Economy roundup

Australian investors were not quite sure how to react to last night’s rally on Wall Street. While the Dow Jones Industrial Average bounced 4.7%, forecasts about world economic growth still look decidedly ugly.

Australian investors were not quite sure how to react to last night’s rally on Wall Street. While the Dow Jones Industrial Average bounced 4.7%, forecasts about world economic growth still look decidedly ugly.

The Melbourne Institute’s monthly bulletin of economic trends showed real GDP growth in Australia slowed to 2.7% in the June quarter, and is expected to fall to 2.1% in the September quarter and 1.9% in the December quarter.

The economics research group also expects the unemployment rate to tick up from the current level of 4.2% to around 4.8%.

Over in the US, key Federal Reserve member Gary Stern warned the world’s biggest economy could be headed for a sustained downturn bigger than that seen in the early 1990s.

“In view of the scope and severity of the recent financial shock, the restraint on economic activity stemming from credit market headwinds could exceed the experience of the 1990s.”

After initially jumping 3% in early trade following the good night on Wall Street, Australia’s benchmark S&P/ASX200 index since slipped to be up 0.7% or 29 points at 4042.4 points at 11:55am AEST.

Most of Australia’s widely-held stocks have increased, with bargain hunters stepping in to buy pummeled shares such as BHP Billiton, Wesfarmers, Woolworths and the big banks.

The global sell-off of commodities put an end to the rally of the Australian dollar, which had climbed back from five-year lows of US63c last week to hit US69c overnight. The dollar is now trading around US68c.