Australia Faces Its First Recession Since 1991, JPMorgan Says

By Jacob Greber

Oct. 29 (Bloomberg) -- Australia faces its first recession since 1991 as prices fall next year for iron ore and coal, the nation's largest exports, according to JPMorgan Chase & Co.

The economy will contract in the six months through March as weakening export growth prompts companies to postpone or cancel investment plans, said Stephen Walters, JPMorgan's chief economist in Sydney.

Walters cut JPMorgan's growth forecast for 2009 today for the third time this month, saying gross domestic product will rise 0.7 percent, rather than the 1.4 percent he predicted on Oct. 22. A stagnation in consumer spending next year and the prospect of higher unemployment gives Australia's central bank scope to cut borrowing costs ``more assertively in coming months,'' Walters said.

``The contours of Australia's coming recession have become clearer in recent weeks,'' he said. ``The outlook for Australia's export volumes and commodity prices has been darkening in line with global growth prospects.''

The Reserve Bank of Australia cut its benchmark borrowing cost by 1 percentage point to 6 percent this month, the biggest reduction since 1993. Governor Glenn Stevens will probably reduce the overnight cash rate target by half a point to 5.5 percent on Nov. 5, according to 14 of 16 economists surveyed by Bloomberg News.

Walters' previous forecast assumed only one quarter of GDP contraction, in the three months through Dec. 31.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net