Treasury Secretary Ken Henry says Australia is facing low levels of economic growth, higher national debt and surging unemployment over the next two years, delaying any recovery until 2011.
In a statement to the Senate Economics Committee, Henry said that the economic downturn is affecting businesses in all industries. Henry’s dire warning was supported by former Woolworths boss and Reserve Bank board member Roger Corbett, who says the global economy looks “very dangerous”.
Henry argued yesterday that the mining, construction, services and manufacturing industries are being hit hard by the downturn. “We do anticipate that the period of economic weakness will be broadly based,” he said.
His comments come just a day after clothing manufacturing group Pacific Brands slashed 1850 jobs and ordered factories to be shut down. The company recorded a first-half $149.95 million loss, and will move almost all of its production overseas.
Corbett also painted a gloomy picture of the economy, saying recovery may be at least 18 months away. “I think the situation is a lot more serious than it was at the end of last year, and I think it will be well into 2010 before we see any significant recovery,” he told an Australia-Israel Chamber of Commerce lunch yesterday.
“When I walked out of the Reserve Bank board meeting in December, I said to myself, ‘how serious this will be depends on the numbers we see coming out in the new year’, and it’s fair to say most of the numbers we have seen have been a lot worse than most have anticipated.
“In recent days, the European banks look shakier than they were, and the major US banks look like they need further help… and that looks very dangerous.”
The comments from Henry and Corbett come after disappointing economic data from around the world. New figures from the US show 7% of its mortgages are in default, while Treasurer Wayne Swan said in Parliament yesterday that Taiwan and Thailand had experienced GDP contractions of 6.1%.
Korea’s economy has also shrunk by 5.6%, while Singapore has experienced a 4.5% contraction of its GDP.
The comments from both men indicate that a higher than expected interest rate cut may occur when the RBA meets on Tuesday. But any cut will still be lower than the 100-basis-point reductions seen in late 2008, as RBA Governor Glenn Stevens has indicated the reserve wants to hit a “trough” interest rate at around 2%.
The official interest rate is currently at a record low of 3.25%.