Wednesday, June 03, 2009

What if Australia was never in "recession"?

We know at 11.30 am EST

THREE of Australia's big four banks are now punting that the much-anticipated recession never took place.

In a stunning about-face the Commonwealth, Westpac and ANZ banks late yesterday switched their March quarter economic growth forecasts from negative to positive, meaning that when Australia's national accounts are released at 11.30 this morning they expect signs of recovery, rather than the two consecutive quarters of contraction commonly taken to define a recession.

If realised the forecasts will mean that Australia becomes one of only three advanced economies known not to have gone backwards in the March quarter, joining Poland and Korea.

The turnarounds follow news of Australia's best trading performance in 48 years with an unexpected 2.7 per cent surge in exports to a new all-time high in the March quarter amplified by a 7 per cent plunge in imports. The Bureau of Statistics says the switch will add 2.2 percentage points to the GDP figure to be released today, making positive growth more likely than had been thought...

Eight of the 17 forecasters surveyed by Reuters have switched their forecasts from negative to positive growth, with the major ones still predicting an recession being the National Australia Bank, TD Securities and UBS.

Prime Minister Kevin Rudd set the scene for today's eagerly-awaited Australian data declaring that "every major advanced economy in the world is now in recession - every one of them". He told parliament Canada went into recession overnight Monday, as its economy went backwards a further 1.4 per cent.

Australia's Reserve Bank board was cautiously optimistic in a statement issued after it voted to keep rates on hold, saying overseas stimulus measures were "helping to contain the downturn and should support an eventual recovery".

It said the turnaround was "clearest in China," and would take longer to begin and be slower in other major countries.

It said that with inflation low it had scope to cut interest rates further, "if needed," but that the effects of its previous cuts and the government's stimulus measures were yet to be fully felt.

The statement knocked some wind out of the soaring Australian dollar, pushing it down below its eight-month high of 81 US cents by holding open the possibility of lower Australian rates.

In a further sign that the worst of the economic downturn may have passed home building approvals surged for the fourth consecutive month in April, jumping a further 7.2 per cent to be 15 per cent above their low point in December.

A record 18,736 Australians took advantage of the enhanced First Home Owners Grant in April, a trend likely to continue as the boost has been extended in its present form until September.

"This stands as a testament to the strength and effectiveness of the stimulus being applied by both the Reserve Bank and the government through tripling the grant," said Deutsche Bank chief economist Tony Meer.

"An obvious risk will be the extent to which the boost has merely brought forward demand. The first signs of any retracement could become evident after September."

Macquarie Bank economist Rory Robertson cited "growing evidence that Australian house prices bottomed in January".

"With house prices and exports up rather than down in the first quarter of this year, Australia is certainly standing out as one of the remarkable performers in the sharpest global downturn since the 1930s," he said.

If Australia does escape negative economic growth in the March quarter in the figures reported today today, there is still a chance the Bureau of Statistics will uncover a so-called "technical recession". The Bureau will also revise earlier growth numbers and may revise away the paper-thin growth recorded in the September quarter, turning last year's September and December quarters into the two negative quarters required to fulfil the definition.