The Australian economy is heading into recession, according to new data from an index of economic activity.
The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three-to-nine months in the future, slipped to -3.1% in January, well below the trend of 3.2%.
Westpac senior economist Matthew Hassan said the index is now in “deeply negative territory consistent with contracting economic activity”.
“There are only four occasions in the 49-year history of the index in which its growth rate has fallen below the current read – in the early 1960s, the mid-70s, the early 80s and the early 90s. Each of these was followed by recessions in the Australian economy.”
But the release also brought some good news, with Hassan saying the current predicament shouldn’t be as bad as the recession of the early1990s.
“Indeed more generally the policy response to date suggests the economy is not heading for a repeat of the early 1990s experience. Both monetary and fiscal policy has been eased aggressively and early.
“At the same time, Australia is not having to deal with the same sort of problems that badly undermined the banking system in the early 1990s – the sharply unwinding boom in commercial property in particular.”
Shares higher
The Australian sharemarket has opened higher for a sixth consecutive day, following yesterday’s 3% rise and more good news from Wall Street.
US investors enjoyed another good day as stocks rose on the back of an unexpected rise in new housing starts and rising optimism about the state of the banking sector. The Dow Jones Industrial Average closed up 178.73 points or 2.48% to 7395.7.
Oil prices also rose nearly $US2 to $US49 a barrel.
Australia’s benchmark S&P/ASX200 index was up 3.4 points or 0.1% to 3455.3 at 12.05 AESDT. The dollar also managed to gain ground to US66 cents.
Commonwealth Bank shares rose 2.3% to $33.22 as Westpac also gained 1.3% to $17.94. ANZ jumped 2% to $14,72, while AMP lost 0.2% to $4.30.
David Jones profit rises
There was also good news in the retail sector, with David Jones shares jumping 6% to $2.64 after it announced full year profit is expected to rise by up to 5% on last year.
The group also says it recorded a first half profit of $91.2 million, up 2.4% from the same figure a year earlier, although store refurbishment could eat into sales growth.
Chief executive Mark McInnes belives the company in well-placed to withstand the downturn.
“Whilst the current financial circumstances are worse than predicted, our company is well prepared.
“We have over the past 24 to 36 months taken important steps to transform our balance sheet, preserve our strong cashflows and manage the key variables of our business to ensure that today we have a resilient business model capable of withstanding a significant economic downturn.”
Meanwhile, the Government is again set to delay any decision on the national broadband network.
The Australian Financial Review has reported that Prime Minister Kevin Rudd and Communications Minister Stephen Conroy will reveal the bid’s winner after Rudd returns from the G20 summit in London in three weeks.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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