Australia suffered its biggest economic collapse in 20 years in the three months to March as severe weather shrank national income 1.2 per cent - a reverse not seen since recession “we had to have” at the start of the 1990s.
The contraction pushed Australia toward the bottom of the developed nation pack it used to lead and put talk of an interest rate hike on hold.
Australia's annual growth rate is now just 1 per cent, well below the 1.8 per cent recorded in the United Kingdom, the 2.3 per cent in the United States and the 2.5 per cent throughout Europe.
“What is clear is this: if the mining boom has a cough the Australian economy can suffer pneumonia,” said Coalition Treasury spokesman Joe Hockey. “The economy is increasingly reliant on the mining boom.”
Treasurer Wayne Swan said he was certain the drop would be a one-off, meaning Australia would avoid the two consecutive quarters of negative growth commonly described as a recession.
“I think there will be a strong rebound. Just as we took a hit of a bit over 1 per cent, I’d expect a rebound somewhere of that order,” he told the Herald
“You’re beginning to see it now in some of the data. Coal exports picked up in April. If you start to move around my home state you start to see it a bit more now.”
Coal and iron ore exports slumped 27 per cent during the quarter and coal and iron ore production slid 5.3 per cent. Treasury expects a further 2.5 per cent slide this quarter. Farm production slid 0.6 per cent with Treasury expecting a further 0.6 per cent as a result of the floods.
Treasury believes the Queensland cyclone, the floods in Queensland, northern NSW and Victoria and and the earthquakes in Japan and New Zealand between them wiped 1.7 per cent off Australian GDP, meaning without the disasters growth would have been positive.
The 1.2 per cent dive is deeper than the 0.9 per cent recorded in the global financial crisis and almost as deep as the 1.3 per cent dive recorded during the early 1990s recession.
Only during the oil crisis of the mid 1970s did the economy contract significantly faster.
The slide calls into doubt the forecasts the Reserve Bank used to back up its warnings of the need for higher interest rates. It last month forecast economic growth of 2.5 per cent over the year to June, and outcome that could now only be achieved with an implausibly large 2.9 per cent rebound in the June quarter.
“It will now be very difficult, from a public relations point of view, for the Bank to deliver soon on its clear intention to raise rates,” said Westpac chief economist Bill Evans.
Eight of Australia’s 19 industry sectors went backwards in the quarter, with sharp reverses in agriculture, mining and manufacturing outweighing smaller gains in retail, health care and construction.
Household disposable income climbed 3.6 per cent but consumer spending increased only 0.6 per cent as households squirrelled away rather than spent most of their extra income lifting their saving rate to an unusually high 11.5 per cent - the highest since the financial crisis and a peak not otherwise seen for 25 years.
Mr Swan said the caution was “partially a result of what people read about the international economy, and partially a consequence of the fact that our two most significant trading partners had very significant natural disasters.”
“We know that people have cash and people are consuming, but they are also saving,” he said. “The heartening thing is that outside of the exports sector, there is a degree of solid strength.”
Published in today's SMH
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