Australia recession inevitable

MELBOURNE, AUSTRALIA - Prime Minister Kevin Rudd conceded for the first time Monday that Australia was heading for a recession, saying it was inevitable in the current global downturn.

"The worst global economic recession in 75 years means it's inevitable that Australia will be dragged into recession," Rudd told a jobs forum in Adelaide.

The prime minister has previously couched his language carefully when discussing how the downturn will hit Australia, refusing to use the word recession in the face of repeated questioning.

Instead, he had said it would be "virtually impossible" for Australia's economy to record positive growth amid the global financial crisis.

But he spelled out the challenge facing the economy unequivocally Monday, saying seven of Australia's top 10 trading partners were in recession and the country could not avoid the same fate.

"The severity of the global recession has made it impossible for Australia to avoid a further period of negative economic growth," he said.

Australia's last recession was in the early 1990s but the economy posted its first negative growth figures for eight years in the final quarter of 2008, and is expected to do the same in the first three months of 2009.

That would officially tip Australia into recession, usually defined as two consecutive quarters of negative growth.

Rudd said the government was addressing the issue through economic stimulus packages worth more than 50 billion Australian dollars (31 billion US).

"The challenge for government is to cushion the impact of recession on business and jobs, through the actions we take, through economic stimulus strategy," he said.

The stimulus includes one-off cash payments of up to 900 dollars to more than seven million taxpayers, as Rudd's centre-left Labor government's attempts to kickstart spending.

It also includes spending 28.8 billion Australian dollars on schools, housing and roads over four years and tax breaks for small businesses.

Rudd said expansionist stimulus policies were a better way of dealing with the global recession than protectionism.

"If there's one core lesson to learn from the events of the 1930s, it's this - when you are faced with a synchronised global economic recession, don"t make it worse by erecting protectionist barriers against one another, because you take what is already a bad situation and make it much, much worse," he said.

"You shrink the global economy even more. You shrink jobs even more. You shrink those businesses which here depend on exports for their survival."

Rudd also defended the government's decision to guarantee bank deposits and inter-bank loans, saying it ensured Australian banks retained lines of credit in global markets.

"If I look at the comparisons between the stability of our financial system in the months since then against what has occurred in so many economies around the world, this was the right thing to do," he said.

Rudd's comments coincided with the release of official data showing the producer price index - the wholesale prices paid by business - fell for the first time in six years.

The index fell 0.4 percent in the March quarter after rising 1.3 percent in the previous three months, the Australian Bureau of Statistics said, upsetting economist predictions of an 0.6 percent rise.

Analysts said the figures indicated that March quarter inflation data due out Wednesday would show prices were under control, giving the Reserve Bank of Australia room to cut interest rates further.

The central bank has slashed rates from 7.25 percent to a 49-year low of 3.0 percent since last September in a bid to stimulate demand.


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