Recession

Reserve Bank Governor Glenn Stevens says Australia in recession | The Daily Telegraph

RESERVE Bank of Australia governor Glenn Stevens has said today the Australian economy is in recession while Prime Minister Kevin Rudd has promised more stimulus measures in the May Budget to combat rising unemployment.

Mr Stevens said it would be rare for Australia to escape an international downturn and there was no precedent for avoiding one the size being suffered by virtually all the nation's trading partners.

"Whether or not the next GDP statistic, due in early June, shows another decline, I think the reasonable person, looking at all the information available now, would come to the conclusion that the Australian economy, too, is in recession,'' Mr Stevens said.

Meanwhile, the prime minister has warned that unemployment will rise but said next month's budget would increase stimulus for the economy.

But Kevin Rudd's press conference ended minutes before he could be quizzed on Reserve Bank governor Glenn Stevens' declaration that Australia was now in recession.

Mr Rudd said it was necessary to act locally, nationally and globally to reduce the impact of the global recession on Australia.

"The truth is this - the global economic recession makes it inevitable that we'll have a recession in Australia which means that, as we frame the budget, we're going to have to make even stronger our economic stimulus strategy because unemployment will rise even further," Mr Rudd told reporters in Perth.

"As prime minister of Australia, I can't wish this global economic recession away."

Kevin Rudd: Recession is out of our control

The national accounts for the December quarter released last month showed gross domestic product (GDP) contracted by 0.5 per cent in the final three months of last year, the first fall in economic growth in eight years.

The March quarter GDP figures are due on June 3 - and this was when the recession was expected to be confirmed officially before Mr Stevens made his comments today.

Mr Stevens said there wasn't a great deal Australians could do to improve international conditions.

"But we can maximise our chances of benefiting from a new international expansion,'' he said.

He said there are many reasons to be confident in Australia when compared to other countries.

Its political stability remained assured, the Federal Government had not had to give direct financial support to the banking system, and that public finances remained in "very sound'' shape.

"Sensible policy frameworks - both macroeconomic and microeconomic - remain in place; the financial regulatory system is strong and tested,'' he said.

"We remain open for trade and investment, and have the capacity to deploy both our own and other people's capital carefully and profitably.

"Finally, there is an exposure to, and engagement with, an Asian region that still has the most dynamic growth potential in the world, where hundreds of millions of people will for decades to come be seeking rising living standards.''

He said there are few countries that can offer such an attractive proposition.
Mr Stevens also called for perspective on banks passing on interest rate cuts.

Banks have come under fire for failing to pass on the latest 25 basis point interest rate cut by the Reserve Bank of Australia (RBA) by the full amount.

"I won't bite too much at whether it is frustrating observing the pass-through issue but I think we should keep some perspective," Mr Stevens said.

"Since last August the cash rate has fallen 425 points and mortgage rates have fallen not quite that much but not all ... short of that," he told the Australian Institute of Company Directors in Adelaide on Tuesday.

"That is a very big decline and mortgage rates are now very low.

"It is not surprising that borrowing for housing is starting to pick up quite noticably and I think we will continue to see that."

"And I think in the greater discussion about these pass-through issues we ought to just keep our focus on that broader picture."

Mr Rudd said the federal government working with local communities could make a huge difference to the impact of the global recession on Australia.

"If we don't act together, then the impact of this recession will be greater than need be the case," Mr Rudd said.

Mr Rudd also rejected Opposition Leader Malcolm Turnbull's claims he was shifting the focus from border protection issues to the global recession.

He said it was quite clear from the economic data from China and a range of other countries that a recession was inevitable in Australia.

"Australia is not an island, Australia is directly impacted by global economic factors in the first quarter of 2009," Mr Rudd said.

"Most of the economic data coming out of those economies which directly affect Australia were negative, therefore, as night follows day, it affects Australia," he said.

"Therefore, the global economic recession is making it inevitable there will be a recession (in) Australia."

Mr Rudd said his comments were made in anticipation of a report by the International Monetary Fund (IMF).

He said the federal government had maintained a consistent strategy of economic stimulus through payments since the end of 2008 and its focus would be on job creation through infrastructure projects including the national broadband network.