Australia’s economy is set for the fastest deceleration in the nation’s history, according to a report from leading economic agency Access Economics.
The report paints a scary picture of the Australian economy’s prospects in 2009, with corporate profits set to halve, unemployment tipped to rise by 300,000, and the nation’s economic engines of New South Wales and Victoria stuck firmly in reverse.
"Batten the hatches,” the report says.
“This is not just a recession. This is the sharpest deceleration Australia's economy has ever seen.”
Access chief Chris Richardson says the big problem for the Australian economy is the sharp slowdown in the Chinese economy, which has underpinned Australia’s economic growth in the last five years.
As the Chinese economy stalls and demand for commodities dries up, Australia will be hit hard.
“China’s slowdown is Australia’s recession. We’ve had a great run, with 17 years of good growth. But with China sitting on the sidelines for 2009, Australia’s vulnerability is revealed,” Richardson says.
While Federal Treasurer Wayne Swan has refused to say whether he thinks the Australian economy will fall into recession, he did concede on the weekend that 2009 would be tough.
“There's no point gilding the lily in any way," Swan says. "China and other emerging economies now caught up in this crisis are expected to slow much more sharply than previously anticipated.”
The Access report says Swan and other state government economists will face an uphill battle to keep their budgets in the black over the coming years.
Access expects total public sector deficit (including federal, state and local government debt) to hit $10.5 billion in 2008-09, but this is likely to blow out to $29.4 billion in 2011-12 as revenue corporate taxes dries up.
Access colourfully describes the federal budget as being “buggered” and says Australia must now pay the price for the fact that the big federal budget surpluses that occurred over the last five years, thanks to the resources boom, were mostly spent on income tax cuts and increases to family benefits.
“This nation has legitimate policy goals in education, infrastructure, federal/state relations, climate change and water management. What it doesn’t have any more is the money to help achieve reforms in those areas.”
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