Leading forecasters have begun openly predicting recession as a new survey shows business confidence falling below its lowest point in the last recession.
Victorian confidence suffered the worst in the National Australia Bank November survey, and is now even worse than confidence in NSW.
"That Australia's two largest states are leading the economy down is not reassuring," said NAB's Alan Oster releasing the report.
The NAB is now predicting a recession in the non-farm economy and a negative rate of inflation in the December quarter.
It says it sees "downside risks" to those forecasts.
Separately, Australia's leading private-sector economists have decided there's a 40 per cent chance of recession...
Elected by their peers to the Australian Business Economists executive committee, the 17 top forecasters work for big financial organisations including the Macquarie Group, Citigroup, Deutsche Bank, the Union Bank of Switzerland and the Westpac, Commonwealth, National Australia and ANZ banks.
Their forecast, delivered to the ABE conference in Sydney, is that growth will slow to a mere 1 per cent throughout next year, with a 40 per cent chance of a recession.
"Leaving aside the mechanical definition of a recession requiring two quarters of negative growth, a few committee members believed Australia could already be in recession, said ABE chairman Rob Henderson.
"Even if the economy failed to pass the technical definition of recession, for many households and businesses the economic downturn will very much feel like recession."
The ABE is forecasting flat housing and business investment throughout the year ahead and virtually no employment growth, pushing the unemployment rate up from its present 4.3 per cent to 5.7 per cent and then to 6.4 per cent.
On balance the group expects another 0.75 percentage points of rate cuts next year, with one member expecting another 1.75 points.
It was unanimous in supporting the use of a deficit to ward off recession.
The National Australia Bank's measures of sales and employment plummeted to their lowest levels since 1992. "They're significantly weaker than the measures reported by the Bureau of Statistics, said the Bank's Alan Oster. "But job shedding is underway across the non-farm sector." Forward orders fell to their lowest level since 1991.
"We have cut our forecast for economic growth from 1.25 per cent to just 0.5 per cent throughout 2009," said Mr Oster. "Of course the government's fiscal package will help, but we believe only around one third of it will be spent.