Figures suggest big Australian recession

Press, 9 June 1986, Page 29

Figures suggest big Australian recession

NZPA-AAP Sydney The Australian economy could be moving into a big recession, and at best, is experiencing a slowdown. According to figures released by Westpac Banking Corporation and the Melbourne Economic Research Institute, the leading index of economic activity, which forecasts the state of economic activity at least six months ahead, fell another 0.7 points to 122.5 in March, and was 5.5 percentage points lower than its peak in August. “Westpac is reluctant to interpret the figures as foreshadowing a major recession, but warns that the indices confirm that the Australian economy is running into a problem period and there is sufficient evidence that strong policy measures are needed,” Westpac said. “The extraordinary deterioration in the terms of trade during the past year and Australia’s poor inflation performance by international standards, indicate a need for a change in Government policy,” the bank said. Westpac said wages policy needed to be reviewed and be accompanied by firm fiscal policy. The Federal Treasurer, Mr Paul Keating, recently advocated similar moves with statements that Aus-

tralia would become a third rate economy unless restraints were imposed on Government spending.

But the coincident index, which gives an indication of current economic activity, recorded a slight rise of 0.3 percentage points in March after a massive 2.3 point fail in February, signalling that current economic activity had stabilised.

Westpac said the leading index had a fairly reliable record in forecasting changes in the coincident index, and further falls in the coincident index were expected in the coming months.

“The latest National Accounts (which showed a 0.1 point fall in the March quarter) have confirmed what the index has been implying for some months.

“But the big question is whether the economy is experiencing a slowdown or moving into a major downturn,” Westpac said.

The bank said that on the positive side, the world business cycle appeared to be moving

into a positive phase, which may provide a cushion for Australia’s economic prospects. Westpac said recent strong rises in the stock market — one of the nine components of the leading index — as a result of takeover activity and a strong performance on Wall Street was the exception to indicators of a downturn in economic activity.

Other indicators, such as outstanding real overdraft limits, moved sideways and helped limit the downturn in the leading index.

But indications of a big downturn in building activity — a major component of Australian economic activity — were confirmed by a decline in the demand for telephones, Westpac said.

The bank said that if it had not been for special factors boosting share prices, the leading index may have fallen more steeply, indicating that Australia may be in for more than a growth slowdown.