AUSTRALIA'S Reserve Bank board has delivered a narrow vote of confidence in the economy voting to hold interest rates steady for the first time in six months ahead of new new data out today expected to show that Australia continuing to avoid a recession.
The December quarter national accounts are now expected to show small growth when released this morning after news of a record trade surplus in that quarter driven by steady exports and plummeting imports.
Import volumes slid 6.5 per cent, while export volumes held steady, slipping a mere 0.8 per cent.
"But it's the mining boom's last dividend," said ABN AMRO economist Felicity Emmett. "It is implausible that Australia’s exports barely budged while the economies of our major trading partners fell at the fastest rate since the 1930s. From here on, exports should tumble massively".
The Reserve Bank board's decision is understood to have been a close thing, influenced by the unexpectedly good trade figures delivered to the board at 11.30 am as its meeting was coming to a conclusion...
In a later statement Governor Glenn Stevens said that while the world economy remained very weak, "on the basis of currently available information the Australian economy has not experienced the sort of large contraction seen elsewhere".
He said the government's stimulus packages and the 4 percentage points of rate cuts to date should "provide significant support to domestic demand over the period ahead".
The Bank is understood to accept that Australia is likely to fall into recession in coming months but to believe that it is powerless to prevent it. Rate cuts typically take 6 to 12 months to have an effect.
Prime Minister Kevin Rudd held out the prospect of further stimulus measures saying they could involve further investment in infrastructure and further measures to support Australians who lost their jobs.
Amid news showing that the government's December stimulus package lifted retail spending further in January to a new record high the Prime Minister said that if the had decided to sit on its hands "the economy, businesses and jobs would be much, much worse".
"That is an unassailable fact which any honest person accepts," Mr Rudd told a business audience.
Opposition Leader Malcolm Turnbull said there was "no evidence" the December cash splash had had any positive impact beyond a slight increase in retail sales.
"But it will put a heavy burden on future generations and guarantee higher taxes and interest rates for years to come," he said.
The Australian share market slid to a new 5-year low after Wall Street collapsed 4 per cent to slide below 7000 points for the first time since 1997. The world's biggest insurer American International Group announced a massive quarterly loss of $US62 billion ($98 billion), the most money ever lost in 3 months in US history.
AIG has 74 million customers in more than 130 countries, including Australian mortgage providers. The US Treasury poured in another $47 billion on top of the $238 billion it had already promised. (AUSTRALIAN DOLLAR FIGURES)
Treasurer Wayne Swan said the overseas developments would have a "dramatic impact on Australia."
"I think we would be kidding ourselves if we thought we were immune," he said.
An OECD report released overnight commended Australia's "Building Australia" initiative as an example of good decision making that would ensure that investment on infrastructure was not wasted.
The report expressed concern at Australia's "low productivity levels" and "weak labour force participation among particular groups". It recommended reform of Australia's disability pension system, universal access to early childhood education and further labour market deregulation "even if the WorkChoices law has been abrogated".
The government's commodity forecaster came up with rare optimism, predicting that minerals exporters would hold on to some of their windfall gains of 2008-09 in the financial year ahead, and that farmers would have a good year if it rained.
The Bureau of Agricultural and Resource Economics forecasts, unveiled at its annual Outlook conference, predict a 33 per cent rise in the value of commodity exports this financial year followed by a 17 per cent fall next year. Even with prices falling more than 25 per cent, almost undoing this year's gains, it would still be Australia's second best year for minerals exports.
ABARE executive director Phillip Glyde told the conference that on the assumption of normal rains, a steady dollar and only slight falls in prices, "farmers are going to have a reasonable year''.