Australia Headed for Recession, Cash Rate of 2.5%, Access Says

By Gemma Daley

Jan. 19 (Bloomberg) -- Australia is headed for a recession because of slowing global growth and the central bank will reduce the cash rate to 2.5 percent soon, Access Economics said.

Confidence will be slow to recover and Australia’s prosperity will unwind “scarily fast,” Access said in a quarterly report released in Canberra today.

“The economy will be slip-sliding into recession,” Chris Richardson, head of Canberra-based research company Access, said in the report. “Australia’s recent prosperity will unwind scarily fast.”

The Australian dollar will fall to 56 U.S. cents, from its current 67.6, the unemployment rate will rise to 7 percent in early 2010 and there will be a current account deficit of A$100 billion ($68 billion) in 2009-10, the report said. The national budget is “staring down a barrel of deficits,” it said.

Since October, Prime Minister Kevin Rudd has announced almost A$45 billion in aid for families, pensioners, bond markets, home buyers, and extra spending on schools and roads to ensure the economy doesn’t enter its first recession in 17 years. Reserve Bank of Australia Governor Glenn Stevens has embarked on the biggest round of interest-rate cuts in almost two decades.

“We face the prospect of the United States economy shrinking, and of course the prospect of China not growing anything like what was expected only a few months ago,” Treasurer Wayne Swan told Australian Broadcasting Corp. radio today. “We have to acknowledge the magnitude of the problem, if further measures are required we will take further decisive action.”

The government’s recent spending boost came after credit markets froze following the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15, prompting governments and central banks around the world to bail out financial institutions and try to revive growth.

To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net