SYDNEY - THE first contraction in Australia's economy for eight years sent shockwaves through markets Wednesday, after the US unveiled a credit drive to stem a crisis that shows no sign of relenting.
Dashing hopes Australia could avoid the global recession, shock figures showed the economy contracted 0.5 per cent in the December quarter, well below market expectations of 0.1 per cent growth.
Ending a long run of expansion on the back of a China-driven resources boom, the figures came despite government attempts to kick start the economy with two stimulus packages worth more than A$50 billion (S$50.5 billion).
Treasurer Wayne Swan said the figures were a 'sobering reflection' of an extremely difficult global environment that was likely to get worse before it improves.
'Although the Australian economy has held up better than most other economies, the inevitable impact of the global recession is clearly evident in today's data,' he said.
The news sent currency and share markets plummeting, with the Australian dollar plunging 0.65 US cents to 63.15 US cents immediately after the announcement and the benchmark SP/ASX200 share index closing 1.6 per cent lower.
Pressurised world markets earlier hit multi-year lows amid worries about the world economy, exacerbated by a huge global rout earlier in the week.
Japanese share prices slipped 0.82 per cent in morning trade, a day after London's FTSE 100 index of leading shares shed 3.14 percent to finish at a six-year low. Tokyo later recovered on bargain-hunting to close up 0.85 percent.
Governments continued to forge stimulus efforts, with Japan's parliament passing a controversial plan to hand 20 billion dollars back to the public to fight the recession.
A US$200 billion (S$310.5 billion) US government bid to rev up consumer lending failed to halt a slide on Wall Street which fell 0.55 per cent on Tuesday, after automakers reported heavy US sales declines as the deepening crisis evaporates demand. -- AFP