Australian Mums Help Economy Survive Global Crisis, Access Says

July 21 (Bloomberg) -- Australia’s economy has survived the most dangerous phase of the global recession and will expand faster than the government forecasts, with fewer people losing their jobs, Access Economics said.

The economy will expand 0.4 percent in the 12 months through June 2010, compared with the Treasury department’s prediction of a 0.5 percent contraction, Chris Richardson, head of the Canberra-based research company said in a report today. Three months ago, Access forecast a 0.2 percent decline.

Consumer and business confidence is rebounding after reports showed Australia was one of the few economies including China and India to grow in the first quarter, helped by the lowest interest rates in half a century and A$12 billion ($9.8 billion) in government cash handouts to households. The government now faces a “budget repair task” as its stimulus package creates budget deficits until fiscal 2013, Access said.

“Australia made it through the most dangerous phase of the global recession with only collateral damage, aided by China’s early bounce and the remarkable resilience of Australia’s mums,” Richardson said. Consumers are spending 6 percent more than when the crisis hit.

China’s economy, Australia’s second-largest trade partner, grew 7.9 percent in the second quarter, making it the first of the major economies to rebound from the global recession, a report showed on July 16.

Still, “China’s bounce is built on sandy soils, and may not guarantee ongoing gains for Australia’s economy by late 2010 and 2011,” Richardson said.

Jobless Rate

Access said Australia’s jobless rate will peak at 7.5 percent, a percentage point lower than the government’s prediction. Access previously forecast a jobless rate of 8.5 percent.

“That is good news, but it is still putting lipstick on a pig,” Richardson said. “We aren’t out of the woods yet. Consumers will flag from here” as the impact from government handouts fades.

“Similarly, businesses will be winding back spending through 2009-10, and the A$50 billion stripped from coal and iron ore export earnings is yet to hit profits and incomes,” he added.

To cushion Australia against the worst global recession since the Great Depression, central bank Governor Glenn Stevens slashed the benchmark interest rate by a record 4.25 percentage points between September and April to 3 percent.

Inflation Risk

Stevens left the rate unchanged on July 7 for a third month, and said slowing inflation gives policy makers scope to cut again if needed to spur domestic demand.

“The risk is that a world awash in money sees inflation in the recovery,” Richardson said. “Inflation risks are rising, though not as much as markets may fear. Both global and Australian interest rates will therefore lift during 2010 and into 2011.”

Signs are also emerging that the world’s biggest economy may be emerging from recession, with the index of U.S. leading indicators rising in June for a third consecutive month.

The Conference Board’s gauge of the economic outlook for the next three to six months increased 0.7 percent, more than forecast, after a revised 1.3 percent gain in May, the New York- based research group said. It is the first time the index has climbed for three months in a row since 2004.