Australian recession fears mount, bank job cuts continue, shares slide: Economy roundup

A recession is a serious possibility, with the Westpac-Melbourne Institute Index of Economic Activity recording the biggest monthly fall in Australia’s expected economic growth in more than two decades.

A recession is a serious possibility, with the Westpac-Melbourne Institute Index of Economic Activity recording the biggest monthly fall in Australia’s expected economic growth in more than two decades.

The index records the forecast of likely economic growth in the next three to nine months. It shows growth was at a mere 1.1% in September – down from 3.5% in August.

Westpac chief economist Bill Evans says the fall is “very disturbing”, and that a recession in 2009 is becoming more and more likely.

“That represents the largest percentage point fall between two months since the mid-1980s – sharper even than we saw in the 1990/91 recession,” he says.

“The growth rate is signalling a very weak growth outlook through at least the first half of 2009. It is consistent with Westpac’s view that growth in the first half of 2009 will be barely positive, with a decent risk that the first two quarters of growth in 2009 could be negative.”

Investment firm Babcock & Brown has joined a legion of investment banks cutting jobs, saying it intends to form a specialist infrastructure investment service by 2010 and cut its workforce in the process.

Following a strategic review in June, and analysis of the worsening global financial conditions, the group says it expects to cut its current workforce of 1450 to 600 by 2010 as part of the restructure process, also cutting its operating costs by more than $150 million.

“We have considerable infrastructure opportunities across North America, Europe, Australia and Asia, and a strong global platform as a specialist infrastructure funds manager, asset originator and developer,” chief executive Michael Larkin says.

“By segregating the infrastructure investment business it should be well placed to return to growth.”

Babcock follows banks around the world in cutting jobs, including Citigroup, Lehman Brothers and JPMorgan. More than 195,000 jobs in the bank industry have been culled in the last few months.

Back home, any early sharemarket gains were wiped out quickly, as the market enters its first day of trading without a short-selling ban.

The benchmark S&P/ASX200 index was down 80 points or 2.27% to 3443.2 at 12.10 AEDT. The dollar was also down 0.81% to $US64 cents.

The big winners for the morning were Wesfarmers, jumping 1.6% to $18.50, with NAB also recording a 0.5% rise to $19.24.

Telstra shares have also lifted 0.5% to $4.10.

Meanwhile, BHP’s proposed Rio Tinto takeover has hit a roadblock, with European Union competition authorities issuing a “statement of objections” to the deal.

The objections pose a significant hurdle to the plans and BHP’s shares have fallen 2.9% to $23.50.

Overseas, Wall Street has rallied after computer company HP recorded announced strong results and forecasts for next year. The Dow Jones Industrial Average closed up 151.17 points or 1.83% to 8424.75.

Oil prices have fallen to a 22-month-low. Concerns over the global economy have pushed prices down $US56 cents to $US54.39 a barrel, the lowest point since January 2007.