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Australia enters recession

This note looks at the latest GDP data released in Australia. The key points are as follows:

- The Australian economy finally succumbed to the global downturn in the December quarter with GDP falling 0.5%. We are now effectively in recession. In the absence of Government stimulus the fall would have been even steeper.

- The recession probably has another 6 to 12 months to run. The global slump has yet to really hit our exports and leading indicators are continuing to slide. On average, Australian recessions last approximately 12 months.

- Unemployment is likely to rise to 7% by year end before peaking next year around 9%. The recent up-tick in the housing market is likely to be just a false dawn before more weakness, company profits are likely to fall 20 to 30% this year and the cash rate has more downside. The decision by the RBA to leave interest rates on hold was premature.

- Fortunately, the absence of housing oversupply, the fall in the $A and quick stimulatory action by the authorities should mean that the recession in Australia will be milder than that already underway in most other developed countries. Nevertheless, its going to be a pretty rough ride over the year ahead.

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