Sydney: A slew of economic data Wednesday pointed to an abrupt end to boom times in Australia as Asia’s fading appetite for mining resources and the global financial crisis put the brakes on the economy.
Inflation fell for the first time in two years in the fourth quarter of 2008, skilled job vacancies dropped by 43% over the year and a major index of economic activity tipped a recession, figures showed.
A drop of 0.3% in the consumer price index slashed the annual inflation rate to 3.7% from 5.0% in the 12 months to September, according to the Australian Bureau of Statistics.
Federal Treasurer Wayne Swan said the drop was further evidence of the impact of the global recession and falling commodities prices on Australia’s economy.
Demand in China and other Asian countries for Australian resources such as coal and iron ore had driven the economy for years, but exports have been hit hard by fading growth in major trading partners.
“Inflation is expected to continue to ease over the next six to 12 months, as the full effect of weaker world economic conditions flows through,” Swan told a news conference.
“We domestically are seeing the unwinding of the mining boom. And as that occurs, the UK, the US, Japan and the eurozone countries are all in recession.”
The government’s focus had moved from fighting inflation to supporting growth and jobs, Swan said.
A government index released Wednesday showed a fall of 7.7% in skilled job vacancies in January from December and a drop of 43% year on year.
“The sort of data we are now seeing, internationally, for the December quarter in terms of many developed countries is very stark,” Swan said. “The premium now is to support jobs and to support growth.”
A $6.9 billion economic stimulus package released in December had been beneficial, he said, with retail figures showing consumption of many basic items was “very strong” during the quarter.
Asked whether more pump-priming measures could be on the way, Swan said the government was ready to take whatever action was necessary to respond to what he called “a global recession.”
Australia’s own economy could be joining the global club of negative growth, the Westpac-Melbourne Institute leading index of economic activity suggested.
The index, which indicates the likely pace of growth three to nine months into the future, contracted by 2.2% in November, strengthening expectations of Australia’s first recession since 1991.
November marked the fourth consecutive month the index has been below the long-term trend of 3.5% growth.
“We are now reporting the first negative reads for growth since May 2001,” said Westpac chief economist Bill Evans.
“In the past, this has been a useful signal of the likelihood of Australia experiencing a recession.”
While the inflation rate remains higher than the central bank’s target of 2.0-3.0%, economists predict the bank will again cut interest rates after shaving its base rate by 3.0 percentage points since September to 4.25%.
“The fall in inflation, with a further decline in prospect, clears the way for additional rate cuts which are necessary given the worsening collapse in global growth and the likelihood that Australia has entered a recession,” said AMP Capital Investors chief economist Shane Oliver.
He predicts a cut of at least 75 basis points when the central bank board meets next Tuesday, while others suggest it could be as big as one percentage point.